Tesla is eliminating two paint colors from its vehicle palette, upcharging customers who want vehicles colored obsidian black or metallic silver. The change is supposed to help streamline the company's efforts heading into two crucial production quarters.
Every little thing is under the microscope, to say the least, at Tesla right now. Analysts are capitulating left and right and all remaining focus is on the company's Q3 production numbers. While guesses as to the Q3 numbers have ranged from grim to the "most amazing quarter in history", depending on who you're asking, Tesla certainly seems to still be pulling out all of the stops in order to try and keep production moving as quickly as possible.
It was just a couple days ago that we noted the company was "aggressively" trying to offload Model 3 inventory at "delivery events" in what we believed was an attempt to help bolster its numbers before the end of the quarter. The pro-Tesla blog electrek reached the same conclusion as us, stating that "Tesla appear[ed] to be trying a bunch of new delivery methods in order to push Model 3 deliveries higher by the end of the quarter."
Now Tesla is taking another step to try and keep production moving along quickly: they are eliminating two of seven color options on their vehicles. CEO Elon Musk put out a tweet Monday night confirming this, and stating that those Tesla owners who want obsidian black and metallic silver will now need to pay a higher price for the vehicle.
Moving 2 of 7 Tesla colors off menu on Wednesday to simplify manufacturing. Obsidian Black & Metallic Silver will still be available as special request, but at higher price.— Elon Musk (@elonmusk) September 11, 2018
The paint shop at Tesla has often been targeted for criticism and as a place where bottlenecks occur. Inside EVs, another Tesla friendly blog, made note of this just weeks ago:
A Model 3 reservation holder tweeted to Tesla CEO Elon Musk complaining that he still hasn’t received his car. This is still the case for many people, however, this particular owner-to-be was already set up to take delivery. His VIN was canceled due to problems with the car’s paint. At this point, according to the Twitter user, Tesla is unable to confirm when a replacement will be ready.
It’s no surprise that paint is one of the remaining bottlenecks in the Model 3 production process. However, the fact that Musk admitted it, went so far as to say that they’ll even rebuild entire cars if they have to (and perhaps already have), and elaborated about challenges with particular colors, makes it an interesting share. On the positive side, it’s becoming increasingly clear the Tesla is laser-focused on making sure the Model 3 is right. While there may have been multiple issues early on, it seems the automaker has worked most of them out and is not going to settle for anything unacceptable.
Musk has said, on more than one occasion, that he had personally visited the paint shop to make sure that it was moving as efficiently as possible. This move to eliminate two colors seems to confirm that the paint shop is part of what is slowing the company down. Unfortunately, being a car company means that you have to offer customers color choices. Perhaps the next step to keep things time/cost efficient will be eliminating all four tires and upcharging for a steering wheel.
While the company may reap the benefits of narrowing down its color selection, it is another concession that customers of the brand have to bear. You can pile this on top of other concessions, like an inconsistent and spotty service network, many vehicles reportedly being damaged on delivery, and dealing with the antics of a CEO who, according to Nomura on Tuesday morning, is behaving "erratically".
Yes, in addition to Gene Munster, another one of Tesla's biggest bulls is capitulating, as Nomura analyst Romit Shah became the latest analyst to downgrade Tesla to neutral from buy. In a note titled "No Longer Investable" Shah writes that previously he’s been one of the biggest bulls on the Street since initiating coverage last October; that is no longer the case and Shah slashed his Tesla price target from $400 to $300 due to the "erratic behavior of CEO Elon Musk" citing such other concerns which we and others have highlighted before as: the increasing number of Musk tweets per day, the cave diver accusation, Musk’s outburst on an earnings call, his taunts of short sellers and his appearance on Joe Rogan’s podcast.
As a result Shah said it's better to remain on the sidelines until the company has better leadership, while still conceding that Tesla can out-innovate the competition and that the company may eventually be much bigger than it is today.
As Bloomberg notes, this now pushes bullish analyst into the minority, an alarming occurrence (especially by sell side standards) for a stock that was once revered and loved unconditionally by Wall Street. Instead, now, "9 analysts [are] recommending buy, 11 [are] recommending a hold, and 12 [are] recommending a sell," according to Bloomberg.