If the Model 3 electric car fails to meet expectations, Elon Musk’s grand vision for Tesla could fizzle.
SAN FRANCISCO — Tesla will shut down its Fremont, California, factory for a week this month to prepare the assembly line for its highly anticipated midmarket electric car, the Model 3.
“This will allow Tesla to begin Model 3 production later this year as planned and enable us to start the ramp toward 500,000 vehicles annually in 2018,” the company said last week.
It’s no exaggeration to say the success or failure of the Model 3 will mark a key event in automotive history.
Electric cars have been around since the invention of the automobile, but they’ve yet to catch on with the buying public. Of more than 17 million cars sold in the U.S. last year, fewer than 1 percent were pure electric. But that’s one place where Tesla is trying to shift events.
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Already, Tesla has taken some 373,000 preorders for the Model 3, with customers putting down deposits of $1,000 each; that figure, which the company made public last year, may have changed as more people placed orders or dropped out.
Michelle Krebs, senior analyst at Autotrader, said not only does the car represent Tesla’s “shot at becoming profitable,” it is “critical to Tesla’s financial success.”
Tesla plans to market the Model 3 for a starting price of $35,000 before any government incentives.
The company has yet to score an annual profit, but given its ambitions and capital requirements, that’s not surprising.
Chief Executive Elon Musk has conjured a grand vision for Tesla: a car company, a battery company and a solar-energy company all wrapped in one.
But if the Model 3 fails to meet expectations, it could fizzle Musk’s dream. Tesla will need the massive cash flow generated by high-volume sales to pay for billions in investments and to provide a return to investors.
The production ramp-up won’t be easy. In 2016, the company delivered 76,230 of its Model S and Model X luxury vehicles. It plans to turn out half a million cars annually next year, most of them Model 3s.
The company is also contending with worker complaints and unionization efforts from some employees.
Stock-market investors have assembled themselves into opposing camps, with bulls pushing the share price to record highs while short positions — bets against the company — are tapping record highs too.
The tension is pervasive as Musk attempts to smoothly combine a major new acquisition, SolarCity, into Tesla’s automobile business and lithium ion battery-pack operations. The idea is to create a one-stop shop for solar rooftops with home battery storage units that can be used to juice electric cars.
Meantime, Musk is running SpaceX, which builds rockets and capsules and shoots them into space.
Tesla has enjoyed remarkable success with its automobiles thus far. The company is widely credited with invigorating serious interest in electric cars.
Other automakers have taken notice, with most announcing aggressive plans for electric vehicles. Already, Chevrolet is selling a competitive model, the Bolt EV, with an advertised range of more than 200 miles, similar to what Tesla promises for the Model 3.
The Palo Alto company enjoys plenty of what marketing experts call brand equity: highly positive regard for the company’s name and what it represents.
Its Model S and Model X have generally received stellar reviews from auto writers. The company’s autonomous driving technology, much of which will be incorporated into the Model 3, is widely considered tops in the industry.
The Model 3’s four-door sedan configuration has given some analysts pause. Sedans are declining in popularity as low gas prices push consumers to crossovers and SUVs.
Musk has made clear that the company has other vehicles in the works, including a sport utility vehicle smaller than the Model X.
The biggest challenge for Tesla is execution: Can the company — which has been plagued by production delays in the past — get the car out, on time, before other automakers flood the market with their own electric cars?