Has Elon Musk Setup Tesla For An 'Epic Fail' With His Model 3 Production Guidance (Hint: Yes)

Tyler Durden's picture

Elon Musk, Silicon Valley's automotive visionary, loves to wow the world with grandiose visions that serve primarily to reinforce his position at the top of the list of tech titans.  That said, at some point we suspect his shareholders will actually expect him to perform against his 'visions' rather than simply talk about them.

And while one can never be sure just how many chances investors in this frothy market will allow Musk before turning on him and his aggressively priced stock, it appears as though he isn't doing himself any favors with his recent Model 3 production guidance.  As Bloomberg points out this morning, Musk is guiding the market to production volumes of 10,000 Model 3's per week by 2018, or roughly 5x his current volumes for the Model S and Model X, combined.

First, Musk said the company is placing orders with suppliers for “1,000 cars a week in July, 2,000 a week in August, and 4,000 a week in September.” 1 Tesla then plans to increase production to 5,000 cars a week by the end of the year, and 10,000 a week by the end of 2018. For context, the company is currently able to make about 2,000 Model S and Model X cars a week.

Tesla

 

And while it's certainly reasonable to assume that a lower-priced Tesla will have more of a mass market appeal than previous, more expensive models, it just might be a stretch to assume the new car will out sale the BMW 3 Series and Mercedes C Class, combined, in it's first year of production.

For Musk to hit all of his targets, Tesla would need to build about 430,000 Model 3s by the end of next year. That’s more than all of the all-electric cars sold planet-wide last year. The rollout will begin in California and move east, focusing on U.S. reservation holders. Even if half of the Model 3 inventory shipped to other countries, U.S. sales under Musk’s targets would outpace the BMW 3 Series and the Mercedes C class—combined.

 

Another forecast Musk reiterated is that Tesla thinks it can build 500,000 total cars next year. 3  Model S and Model X growth would continue, but at a slowing rate. The chart below, as far as we can figure, is the ramp that Tesla is forecasting.

Tesla

 

To sell that many $35,000 sedans in the U.S. “would be absolutely unprecedented based on what we know about car markets today and how people spend their dollars,” said Salim Morsy, electric car analyst at Bloomberg New Energy Finance. “It could happen. I’m pretty sure it won’t.”

Virtually every Wall Street analyst agrees. Even the most bullish among them don’t think Tesla can sell half a million electric cars next year, and Musk has a long history of never setting a deadline that he’s likely to keep.

Meanwhile, as we pointed out earlier this month (see "Tesla Admits It Still Hasn't Completed A Model 3 Beta Prototype"), Car and Driver found an interesting "risk factor" in Tesla's 10-K which basically cautioned that, despite aggressive production guidance slated to begin just 6 months from now, the company hasn't even developed a Model 3 "beta prototype"....

And Car and Driver's Anton Wahlman - who appears to be one of the few who actually read Tesla's 10-K filing - may have found the reason for the doubts...

From the filing:

 

“We expect that the next performance milestone to be achieved will be the successful completion of the Model 3 Beta Prototype, which would be achieved upon the determination by our Board of Directors that an eligible prototype has been completed. Candidates for such prototype are among the vehicles that we are currently building as part of our ongoing testing of our Model 3 vehicle design and manufacturing processes.”

In other words, Wahlman points out, Tesla has not “completed” a Model 3 “beta prototype” as of, well, either of these two dates: December 31, 2016 (the period that the SEC filing covers), or March 1, 2017 (the date on which the document was filed). Pick your poison.

...but it's totally fine because, as Bloomberg notes, Musk has plans to simply 'revolutionize' the automotive production process by simply skipping the beta testing phase.

Tesla is redefining how cars are developed, built, sold, and updated. Some of the tricks Musk plans to speed up the launch can only be done once. Others may transform the automotive industry much like Telsa’s over-the-air software updates. Here’s what we know:

 

Tesla is skipping “beta”—sort of. On Friday, Musk fired off a barrage of 50 messages on Twitter while on a flight to Cape Canaveral, Florida. Among them was a six second 4 , the first glimpse of what he calls a “release candidate” Model 3. The term is more typically used in the software industry, referring to a final version that’s almost ready for public release.

 

Musk is condensing the typical timeline for a car release. A traditional auto manufacturer spends about six months testing a beta cars prior to a rollout. Musk seems to have skipped a step, and is building test vehicles using the same equipment line that will feed mass production. If that’s the case—and this truly is a “release candidate”—then it implies that production is on track. The car looks very much like the vehicles Musk showed a year ago, and that fidelity to the original prototype will have helped keep engineers on schedule.

Of course, if beta testing phases are so irrelevant one has to wonder why the major OEMs spend 1-2 years, and millions of dollars, testing their vehicles before mass release...we're sure it's all just bureaucratic waste...

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Jim Sampson's picture

HAHAHAHAHAHAHAHAHAHAHAHAHA!!!!!!!

jcaz's picture

By the time the 3 launches, we'll have our choice of at least a half dozen more attractive options-  Musks' dream doesn't factor in competition.....

Pinch's picture

Another fossil-fuel-funded attack article about Musk. Yawn.

I suppose ZH has to get revenue somewhere.

greenskeeper carl's picture

What is it, exactly, that you think provides most of the power to Teslas?

Bernie Madolf's picture

It runs on Mr. Fusion. Documented in a movie about Dr. Emmett Brown.

BaBaBouy's picture

Underestimating the FED ... YES
~
Underestimating MUSK ... NO

Winston Churchill's picture

He's going to take a shitton of suppliers down with him.

He needs a rubber rom, not a boardroom.

He and Yellen make a fine pair, eating ther own bulllshit.

knukles's picture

"It could happen. I’m pretty sure it won’t."
Don't pay any attention to the abnormal outliers.

benb's picture

How much more are we going to subsidize this guy? I heard he already took 4 billion from the US gov. Is that true?... All so my cousin can drive his 100k electric car and feel good about it. He thinks we're all going to die from CO2.... The Reality Gap is growing by the day.

knukles's picture

We all fell better about everything because I believe that i'm helping for all of us.
Including black people who appreciate every white person more for driving an ecologically sensitive vehicle.
Go on, just take a victory lap through the South Bronx or Compton.
You'll see!

benb's picture

I'm sure you've seen the same thing. They are absolutely sure about the CO2 crisis.  And they are self-righteous about it.

caribbeanbarry's picture

Yes. We need to produce LESS plant food (C02). Then we produce MORE Frankenstein-food. Then we all die and the earth is SAVED!!!

Jein's picture

Teslas aren't awesome because they're "green." They're awesome because they're fucking sweet have you been in one? 

SILVERGEDDON's picture

Elon is going to shove a plug up his ass, and power all of North America, while simultaneously replacing the NSA with Big E. 

Welcome to Ego Skynet.  

alphamentalist's picture

Musk is the Jim Jones of CEOs

NurseRatched's picture

Brilliant!

Jim Jones had to be content with the welfare and Social Security checks of his apostles: Musk has found a much bigger vein of government funds.
The typical Tesla costs about $77K to manufacture. How will that price drop to $30K with the new model when the battery savings will only be $K per vehicle?
Also, how many of the those 400,000 people who put down a $1,000 refundable deposit will demand a refund when they can't flip their vehicle or place in line for a huge profit? How many of those people really want to own a battery powered car and how many are speculators?

LetThemEatRand's picture

I really don't get the hatred of Musk around here.  He's a guy who is innovating in huge ways.  Yes, he got some government loot, but you could say the same thing about every defense contractor including some of the biggest companies in America such as Boeing and Lockheed, every oil company (they don't pay for the military to defend their pipelines and open up drilling in countries like Iraq), healthcare provider, the Big 3 (police cars, federal cars, GM, etc), computer manufacturer (how many computers has uncle sam bought over the years), and so on.

Seems like a sophomoric knee-jerk, ideological bias to me.

Pinch's picture

It's time the drones at ZH acknowledged that the fossil fuel companies get the biggest subsidies, BY FAR. Tax-based fossil fuel subsidies amount to almost $11 billion per year federally, but it gets worse. The IMF found that in 2015, fossil fuels were subsidized by $10m a minute, to the tune of $5.3tn, which is greater than the total health spending of all the world’s governments.

Of course "Tyler Durden" has the Koch brothers' schlongs so far up his ass, he'd never tell you this.

LetThemEatRand's picture

I love this site and I don't think the Tylers have anyone's schlong up their asses, but they do have some ideological biases as reflected by the constant Musk bashing.   As you point out, many other US companies receive astronomically more in government subsidies even if not on paper.

Musk is probably an asshole, but he built something pretty amazing.  His cars go head-to-head with supercars for a fraction of the price, and lots of people want them.  Not to mention the rocket technology.

Cabreado's picture

Then why can't he survive on his own?

Moe Hamhead's picture

And so Pin(ch) head, how much are you willing to pay for your energy consumption?  Or do you ride a bicycle and live in the cold and dark.

fx's picture

Musk is a scam artist and con man if there ever was one. bailing out almost bk SCTY (with him and his cousin having huge stakes in there) with TSLA shareholder money. Buying SCTY bonds with NASA funds via space X. essentially running a ponzi at tesla motors. tesla's major business isn't building and selling cars. It#s selling ZEV credits and common stock.
No, I do not hate musk. You have to give credit to this guy. Musk is making billions off morons who are all too happy buying essentially worthless shares. And he is doing it by just growing and keeping lots of hype for many years. Even his almost perfect track record of underdelivering and overhyping hasn't derailed his snake oil selling business. that#s quite an achievement.

LetThemEatRand's picture

This would be a good opportunity for someone to point out what was already pointed out in the posts to which you are responding.

adr's picture

You can buy the upcoming Dodge Demon for $65k that will wipe the floor with almost anything under $1 million. 

The Nissan GTR destroys supercars five times the price. 

The performance of the Model S isn't really that spectacular for the price. The fact that is has an interior closer to the quality of a Kia Rio than a S Class Benz is a major problem. 

The seats of the Model S are horrendous. The ergonomics of the interior look like they were fashioned by a community college dropout and the Model 3 looks like a platypus that sat on a catfish. 

It is true that a lot more people can afford a $35k car, but not a single Model 3 will sell for that price. Most will be north of $50k. The big problem is very few people live in a home that has the necessary power network for charging a vehicle like the Tesla cars. I'm not going to pay $8-10k to wire my house so the car charges faster than 12 hours, if I even can in my area. 

Midas's picture

Incremental electricity production in North America is done with natural gas.  We are burning natural gas in power plants and creating electricity that is then pushed down already loaded power lines to charge an inefficient battery to power the car.  There is inefficiency every step of the way.  Why don't we just burn the natural gas in the car?!?  I have not seen the whole life cycle costs compared side by side, but I would love to.  There is a big difference in energy sources:  those that are portable and can be stored and those that can't.  We are subsidizing an "inventor" who took laptop batteries and put them in an oversized golf cart and turns storable/portable/energy dense fuel into non-storable electricity and loses significant power along the way.  And then to top it off, they are trying to sell Powerwalls to store energy after they just burned all that natty gas!  It was already in storage!  Does that go a little ways to describing why I bag on Elon Musk?  I do use Paypal though, I'm kewl with that.

Madcow Kaczynski's picture

Don't try to make too much sense around here at oil stock club, Rand.

Hey fuckwits, if you could charge your car for free from the independent power station on your roof, would you be more free?

You can't eat oil stocks you fucking cunts.

Haters gonna hate.

Dump's picture

$10 Billion. Thats alot.

But less than one thousandth as much as the $16 trillion the the top 50 banks got (including non-US ones) during the GFC.

not dead yet's picture

Lot's of bullshit. Most of those so called subsidies are normal tax breaks that are available to all companies or outright lies by enviros to justify subsidies to people like Musk, the solar industry, and other enviro wacko projects that usually go broke like Solyndra, Evergreen Solar, and scores of others. Last year Musk got $300 million in ZEV cash because he sells a "zero pollution vehicle" which is a lie as the power source pollutes. His rich customers get $7500 of your tax money with many states also kicking in as as much if not more than that $7500. Every time a fossil fueled vehicle fills up a great deal of the tab is taxes to pay for road and infrastructure. Musk's rich buyers pay nothing. Unlike Musk the fossil companies also pay huge taxes, not to mention fees for permits, leases, etc, with Exxon usually the biggest taxpayer in the US.

GM, Ford, and Chrysler not only put America, and most of the world, on wheels they set the stage for the American industrial revolution and the rise of the middle class. When GM and Chrysler couldn't get money due to Wall Street greed almost bringing down the world financial system they went to the FED's as a last resort for assistance which kept them in business and their employees working. The Big 3 are now making huge profits and paying taxes and making some fine vehicles. Instead of acknowledging the role these companies played in the success of the US people whine about bailouts and Government Motors. Chrysler paid back their loans early, like they did in the 80's, and the government would have made a profit on GM if they had held onto their GM stock. Even the Big 3's competition wanted them around because if they went under huge numbers of suppliers, that also supplied the competition, would go with them. One rule of thumb is for every auto job 10 more are created. If you think things were bad in 2008 imagine if GM and Chrysler and their suppliers went belly up and millions more people put into the streets.

fx's picture

bravo. seems that at least some people's brains are not dead yet.

A is A's picture

Lol. The IMF?! Well it must be true then! Would you mind sharing with us what exactly these subisdies are? You'll quickly find out they are pulling BS out of their ass to come up with these "subisdies". The fake news is strong with this one. XD

Cabreado's picture

We have more important fish to fry than this:

https://www.wsj.com/articles/elon-musk-launches-neuralink-to-connect-bra...

The universe can be anyone's playground, but subsidies don't reconcile with that.

malek's picture

"He [Musk] is a guy who is innovating in huge ways."

Could you give us a few striking examples of his innovations?

LetThemEatRand's picture

He made the electric car mainstream.  

He lands rockets on floating pads.

 

malek's picture

The first is a small feat -basically natural progression not innovation- as long as the electricity for those cars is still mostly generated by conventional power plants.

The second is somewhat innovative if it works (how many successful landings did they have so far?);
but I still haven't seen any public attempt by anyone to total energy use for slowing down the rocket stage's descent (it's not the whole rocket that lands on the floating pad) to soft land it vs. the energy to build a brand new one instead, taking into account the surely *limited* number of reuses even for a soft landed one.

not dead yet's picture

Selling toys to rich boys is not mainstream. Tesla sales numbers don't impress when one considers it's world wide sales not just the US. Others are more confident in their equipment and land their rockets sucessfully on solid ground. But since they don't get the press, or the contracts, due to the cult and clout of Musk much is not heard of them. After the first Musk rocket landed he claimed it would be at least a year before they could relaunch it if at all. Electric cars on the whole sell at a dismal pace and sales are almost non existent once states drop subsidies. Electric cars may become mainstream not because of Musk, as his cult members believe, but due to government mandates. If Trump rolls back MPG mandates and others follow suit the electric dream could die. But the rich will continue to buy the Tesla's and other high end electrics coming on the market as status symbols.

If as many believe the stock market is in a huge bubble and will crash coupled with an economy that is weak and edging towards recession the shit's about to hit the fan. If it does sales of the Model 3 will be nonexistent and solar panels to the home owners will dry up. Goodbye Solar City which will drag down Tesla with it. If things get bad enough even the rich will put off buying their Tesla toys.

Tesla fan boys drool when they spout 0 to 60 and quarter mile times of the most expensive Muskmobiles. Why is it only those types of numbers and not performance on NASCAR or other tracks. Oh yea, the computer shuts down most of the battery output to keep from damaging the battery. Motor Trend tested the quarter mile and 0 to 60 of the latest Ludicris Tesla. The computer will not allow the track modes until the driver acknowledges that doing so could damage the battery and the drivetrain. Even then the computer makes you wait as it warms the battery and pre cools the motors.

Fan boys like to claim Tesla is fantastic because they can update over the air. Anything that can be accessed over the air can be hacked so this is not an advantage. Some rich guy pisses off his wife and she hires a hacker to crash the car with hubby in it and he dies. The perfect crime.

Winston Churchill's picture

Musk will go down in history all right Rand, as the man that retired the word ponzi.

Forever more it will be called a Musk scheme, and that would make you a mark for believing any of this.

LetThemEatRand's picture

I often (not always) agree with you WC, but on this I do not.

We've both been here 5+ years.

How about a wager.  I made a high stakes wager here a few months ago with someone who will remain nameless, that Trump would continue to sell arms to Saudi Arabia.  He did, and I won the bet.  But I didn't try to collect, and frankly I don't want to.

How about we wager one dollar and bragging rights if Musk is still here and making cars in five years, and isn't the new name for Ponzi.  I take the still making cars/not Ponzi side of the bet, you take the bankrupt and new Ponzi side of the bet.

Cabreado's picture

Don't mean to interrupt, but you forgot to offer your projections of subsidies into the Musk side of the equation.
Pretty lopsided and disengenuous wager.

malek's picture

Add to that "making cars in five years" is a pretty elastic clause - I mean would DeLorean-like production numbers suffice?

LetThemEatRand's picture

I thought this was zero hedge.  You are sure hedging your dire predictions for Musk.  Pussy.

fx's picture

you have a point here, LetThemEatRand. But then again, why is Musk so busy getting into Trump's a$$ all the time? Sure he wants to find some chunks of fresh govt handouts there - or what else is he trying to grab there?

jcaz's picture

Shhh-  don't interject common sense into this conversation, fx- you'll mess it all up.

Hysterical that these "great minds" can't read a balance sheet.

If Musk doesn't suck Trump off,  Tesla dies,  because.......

Tesla..... Doesn't.... Make.... A....Dime....Of.....Profit.....And....Never......Will.......

Did you see Musk's NEW profit plan?  He's gonna sell 10 JILLION Model 4 cars priced at $19.95.

espirit's picture

Bring back the Honda 90.

We don't need no stinking cars in Mericastan.

Wannabee's picture

I loved the Trail 90! Just about go anywhere regardless the abuse you heaped on it.

Bunga Bunga's picture

You got hyperlooped.

SloMoe's picture

Plenty of crash-test dummies in CA to "beta" for Musk...