Exciting news for Tesla Model 3 reservation holders and Elon Musk fans worldwide. Pilot production of the Tesla Model 3 will begin on February 20 a confidential source tells Reuters. The source didn’t say exactly how many of the pilot production cars will be built. It could be a few dozen or a few hundred. According to Wikiwand, “A pre-production car is a car is like a beta version of a software program — it is used for demonstration and evaluation purposes of an all-new vehicle.”
It is not news that Tesla will build pilot cars before production begins. Every manufacturer does. They are used to calibrate the assembly line, determine if the cars that come off the line meet design standards, and verify the quality of components provided by outside suppliers. Some are crash tested; others are used for demonstration purposes to generate excitement in the marketplace. Tesla, of course. chooses not to spend money on traditional advertising, but it does get a lot of free publicity from its skillful use of social media.
The timing of the start of pilot production is interesting. There is little doubt that Tesla’s stock price is closely tied to whether it gets the Model 3 into production on time, something it has struggled to do in the past. The Model S was about a year late to market. The Model X was almost 3 years late by the time it finally got into full production and all the bugs in its innovative falcon wing doors were ironed out.
The Q4 conference call was originally scheduled for February 8, but that date was cancelled and the event was pushed back to February 22. Why? Marco Papa of Teslarati speculates that pushback from the SEC about the way Tesla reports its financial data may be partly to blame. He quotes a report published by Market Watch on December 6 that says , “Tesla was firmly taken to task by the SEC over what it called ‘individually tailored’ numbers, which are strictly forbidden. In fact it took four letters from the SEC, three from Tesla’s lawyers, five amendments to a filing and at least one conference call before the regulator was satisfied.”
There may be another reason. Tesla reported its first profit in over a year at the end of Q3. But its production numbers for the final quarter were somewhat lower than hoped for, due mostly to shutting down the assembly line for a week or more to begin installing its new suite of autonomous driving sensors known internally as Hardware 2. It’s possible the end of year financial report will disappoint investors. “What better way to stoke the fan base and Wall Street than to wheel out pre-production models” ahead of the earnings announcement, someone familiar with Tesla’s plans told Reuters.
What people really want to know is, when will actual production of the Model 3 begin? There are 373,000 reservation holders worldwide who are champing at the bit to get their cars. A Tesla spokesperson declined to comment, saying only “our ramp-up in production moves as fast as the slowest and least lucky supplier.” Musk announced last year that production was scheduled to begin in July, 2017, but even he acknowledged that was an aggressive timetable. He suggested the company could miss that startup date if suppliers don’t meet deadlines.
Elon Musk says Tesla will build 100,000 Model 3 cars in 2017 and will be manufacturing a total of 500,000 cars a year by the end of 2018. That is another highly ambitious target for a company that only built 83,922 cars last year. Stock analysts are skeptical. “We assume “0” Model 3 deliveries in ’17,” Barclays analyst Brian Johnson wrote in a Jan. 3 note. Morgan Stanley’s Adam Jonas in a Jan. 19 note said he expected a “soft launch” of the Model 3 to be delayed until late 2017. Nonetheless, Jonas has raised his target price for Tesla stock to $305 per share.
Elon Musk has said that Tesla will be the largest automobile manufacturer in the world one day and will have a stock valuation equal to Apple. That is bold talk. If either of those predictions is to come true, Tesla needs to get the Model 3 into production on time with none of the serious build quality issues that plagued the Model X. Tesla is one of the most shorted stocks on the New York Stock Exchange, which means a lot of investors are betting against Musk to accomplish the extravagant goals he has set for himself. In a few months, we should know who is right — Elon Musk or the skeptics.
Source: Reuters Photo credit: Teslarati