Tesla Model 3 a make or break moment

Tesla is having a bit of a Dodge Caravan moment.

Way back in 1983, the Chrysler Company was on the verge of bankruptcy. Sales were slow and vehicles had the worst of reputations.  They needed something good, and fast. Then, in late 1983, they introduced a brand new vehicle, unknowingly creating a category and changing how families drove.  Ultimately, the Caravan, and all its siblings, saved Chrysler. It became a dominant force in minivans, where it still is today.

Fast forward to 2016, and another major car company stands on the brink.  Tesla, long the darling innovator, needs something good.  Fiscally, the company is burning cash faster than they can make it. An IPO raised hundreds of millions, yet Tesla still relies on state and federal grants for sustenance.  Every one of their Model S sold comes at a cost of $4,000 to Tesla. There has been a fair share of Tesla issues reported since the first car was delivered in 2012.  While the car received rave reviews from Consumer Reports and NHTSA, stories of production shortages, delayed deliveries, and frequent breakdowns have plagued the brand.  For a short time, images of burned out Teslas made headlines worldwide.  The Model S was even stripped of its coveted Consumer Reports “Recommended” title.

Tesla’s Model 3 has the possibility to cure a lot of what has long plagued Tesla.  This car should have been launched by the brand a lot sooner.  Tesla desperately needs to reduce the cost of manufacturing, something that only high volume can achieve.  While consumers pined over the Model S, high cost took it out of reach for most potential customers. Delivery delays and post production issues did make for some cancelled vehicles, but Tesla worked hard to resolve them quickly, at great cost. As a result, Tesla still enjoys the highest customer satisfaction rating in the industry.  Tesla should have dropped the Model 3 within 18 months of the Model S going live.  Doing so would have given them the opportunity to gain volume, and reduce the cost of both vehicles.

Releasing the Model X before the Model 3 is a big mistake.  Tesla is taking a big gamble in a very crowded market segment. The Model X offers some very quirky takes on existing crossovers, and it likely won’t sell with any higher volume than the Model S.  Potential for profit margin is slim.  Delaying development in favor of the Model 3 makes better business sense.  If Tesla had their hearts set on a larger vehicle entry, it should have been a pickup.  All-Electric pickups would give Tesla access to the lucrative contractor and municipal government client base.  Fleet sales alone could generate significant volume.  Fleet customers buying modern trucks wouldn’t bat an eye at spending $50,000-$70,000 per unit. Cost savings are easily recouped considering fuel savings, and the PR value of going green with a Tesla fleet only adds to the value. For Tesla, pickup trucks enjoy some of the highest profit margins of any vehicle, bolstering a sagging bottom line.

Tesla’s Model 3 comes at a crucial time for the company, who has a lot riding on it.  Now there is a Tesla available that is within reach for the average car buyer.  People are already lining up in droves to order the car. The Model 3 will sell very well, driving up volume for the company it has never seen before. Hopefully this car becomes their Dodge Caravan, and the Model 3 remains at the top of its segment for decades to come.

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