AP Photo/Justin Pritchard
Tesla Motors unveils the new lower-priced Model 3 sedan.
The automaker plans to launch the Model 3 in late 2017 and begin fulfilling 373,000 pre-orders for the vehicle through 2018; customers put down $1,000 each after the Model unveiling in March 2016 for the privilege of waiting two years or more to take delivery of their car.
Because Tesla was three years late launching its last vehicle, the Model X SUV, speculation has been rampant that the Model 3 will suffer similar delays. Everyone also now knows that the Model X's complicated design and troubled initial production created a hellish situation for Tesla CEO Elon Musk and his team.
Memories of that struggle have fueled views that Tesla will make Model 3 customers wait and wait and wait some more to get their cars.
But those fears are misplaced. In fact, Tesla is on now on track to potentially launch the Model 3 ahead of schedule.
Hitting its marks
Model 3 test-builds will commence on February 20, Reuters reported. Initial production is slated for July, assuming that Tesla can organize its supply chain and not have to wait on parts.
Test building will help the carmaker refine the Model 3 design and isolate any quality control issues. It will also demonstrate whether a simpler design for the Model 3 will enable production at the scale Musk needs to meet pre-orders and push toward a 500,000-per-year run rate by 2018 (not all those vehicles would be Model 3s, of course, but the 3 is expected to consume the bulk of Tesla's future manufacturing capacity).
There will be obvious signs of whether Tesla is on track. In March and April, we should start to spot prototype Model 3s in the wild, undergoing real-world road trials. Tesla will also have to give the government several Model 3s for crash testing. And production versions of the vehicle will appear at Tesla's stores, to stoke interest and reassure Model 3 pre-order customers that their cars are on the way.
A lot of the specifics about the Model 3 in terms of features and performance may not be unveiled until the car's launch. But that launch could happen in short order, in production fires up in July. For the past year, we've been expecting the Model 3 to launch in the fourth quarter of 2017. But a third-quarter launch is now a real possibility.
The naysayers could get burned on this one. Tesla learned a lot about how to build cars when it created the Model S from scratch back in the early 2010s. The Model X was overly ambitious, and Tesla now knows that it can't make that mistake again.
Easier to build
Benjamin Zhang/Business Insider
Tesla's factory in Fremont, CA.
The Model 3, unlike the Model S and X, will use steel rather than aluminum in its construction, which will simplify Tesla's manufacturing process. Early indications are that the carmaker may streamline some interior components, such as the instrumentation. Every Model 3 will come with Enhanced Autopilot hardware, but there's nothing exotic about cameras and sensors. And Tesla isn't going to use a battery or powertrain setup that's substantially different from what it already has on the Models S and X.
The bottom line is that electric cars are actually easier to build than gas-powered ones, and Tesla should start to see meaningful returns on that simple reality as it moves into mass-production for the Model 3.
Mind you, Tesla probably won't roll anywhere near 100,000 vehicles at first. If a few thousand Model 3 vehicles exit the Tesla factory in Fremont, CA this year, it will be a commendable achievement. I've been joking with colleagues for months that Tesla will get the 3 launched in 2017 - even if it only sends a dozen vehicles off the assembly line, with Musk behind the wheel of the first one.
Production at scale will likely not occur until mid-2018 at the earliest, and it's worth noting that Tesla still needs to produce the Model S and Model X, as both vehicles command substantially higher prices and bring in larger profits. Ironically, Tesla is heading downmarket after having established itself at the more profitable, high-end of the auto market.
The stock-price factor
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A big rally.
There's another important factor in all this, and that's Tesla's stock price, which is up almost 40% since the beginning of the year. A surprise profit for the third-quarter of 2016 and President Donald Trump's build-in-America policies are driving positive sentiment on Wall Street - and giving Musk the option of another capital raise in 2017 if he needs to bolster Tesla's cash position.
A sped-up Model 3 timetable would turbocharge shares and could conceivably send Tesla well above it current $40-billion-ish market cap. If that happens, it would provide some cushion for investors who are concerned about the complexities of Tesla's acquisition of solar-panel company SolarCity last year, which has added billions in debt to Tesla's balance sheet and diluted existing Tesla shareholders, thanks to the $2.1-billion all-stock purchase.
So the good news looks like it will keep on coming for Tesla. There's no question that the Model 3 will launch in 2017. And it could hit the road even sooner than expected.