Reuters/Mike Blake Tesla CEO Elon Musk.
- Tesla and SpaceX CEO Elon Musk has been taking a victory lap of sorts after a successful launch of the Falcon Heavy rocket.
- That's fine, but meanwhile, Tesla is at risk of falling well short of targets for Model 3 deliveries and production.
- Musk has gone all-in and slept at his factory before - and it might be about time to do that again.
SpaceX's recent Falcon Heavy launch was a smashing success - all the more so because CEO Elon Musk turned his personal Tesla Roadster it the telegenic payload.
Musk's mission-to-Mars fixation is well known, and the Falcon Heavy is the first step. He said the maiden launch could have been a fiery disaster, so the outcome entitled him to take a sort of victory lap.
Which he did when he journeyed to Texas for SXSW, participated in Q&As, hobnobbed with the buzzerati, and photobombed Ashton Kutcher and St. Vincent. He also wore perhaps his coolest jacket yet, and just for the record, it was going to be hard to top his Trucker Elon model from the Tesla Semi event late last year. For SXSW, he broke out a dashingly updated WWII-style leather bomber.
Yes, he's cool. But while all this was going on, Tesla was still struggling to ramp up production of the Model 3: estimates for how many cars the company will actually produce and deliver in the first quarter are all over the place, but skepticism about Tesla hitting a Q2 target of 2,500 Model 3's assembled per week is justified.
This month, Tesla shareholders will also vote on Musk's new 10-year mega-pay package, which anticipates a future market cap of $650 billion, roughly $600 billion more than it's worth now. Partying in Austin isn't a benchmark that Musk needs to hit for his payouts to come through.
Where in the world is Elon Musk?
Tesla observers have often voiced concerns about how Musk allocates his time. The main issue has been that he's CEO of two high-stress companies in Tesla and SpaceX. But he also likes to enjoy himself and clearly doesn't mind using his celebrity and visibility as an ongoing marketing strategy.
Still, it would be more heartening to those worried that Model 3 production will continue to fall well short of the goals Musk has offered if he would go back to engineer-mode and do what he's done before: camp out at the Gigafactory, Tesla's giant battery plant in Nevada; and sleep on the floor at the car factory in Fremont, CA. (He might already be sacking out at the factory, we can't be sure, but we did ask Tesla is the CEO is and didn't hear back right away.)
Musk is a big-vision genius who has always been capable of also getting down and dirty with the details. He taught himself rocket science and auto design and remains the product architect at Tesla, despite the company employing over 30,000 people these days, many of them highly qualified technologists.
The situation at Tesla is mission-critical at this point. Tesla hasn't really made any money in 14 years, and although it has returned a better-than-1,000% return to investors since its 2010 IPO, it's often diluted shareholders through capital raises, burned through $3.5 billion in cash last year to build a mere 100,000 vehicles, and is now stuck with a balance sheet that is heavy with debt.
The Model 3 is mission-critical
Hollis Johnson/Business Insider
Build more, please.
The Model 3 isn't necessarily the way to overcome these challenges; it's debatable whether the car will be profitable. But Tesla does have 400,000 pre-orders for the vehicle, so mass-production means a major bump up in revenue.
If Tesla can get the cars out the door and into customers' driveways. At the moment, manufacturing is the bottleneck - demand for the Model 3 is unprecedented. Musk was crunching problems in Nevada last year, but thus far in 2018, he has guided the company to much lower production runs than foreseen last year: 2,500 Model 3's per week by the end of March; 5,000 per week by the end of June.
The markets and customers will likely be patient with Tesla, even if it reports disappointing deliveries in early April for the first quarter. The markets could actually be infinitely patient - betting on Tesla, even as it violates all the fundamental rules of business, has paid off handsomely.
Customers are another story. Nobody who isn't buying a $300,000 Ferrari waits to get their car for more than, oh, a few days. Some Model 3 reservation owners could be looking at 2020 or 2021 if Tesla doesn't get its act together. By that time period, there will be potentially dozens of new electric cars in the market, priced where the Model 3 is: $35,000-$60,000 (the latter would be the very well-optioned version).
That's really unexplored territory for Tesla. How long will devoted customers really be willing to wait?
From my point of view, it's about time Musk broke out the sleeping bag and got back to work on the factory floor.
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