As Tesla Delivers First Model 3s, Musk Warns Of "Manufacturing Hell" Ahead – Forbes

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Tesla says it has more than 500,000 orders for its Model 3 electric sedan, priced from $35,000, but initially starts with a $44,000 variant.

On a day when Elon Musk should be giddy, with Tesla achieving an 11-year old goal of creating a widely affordable electric car for the masses with the Model 3, its multitasking CEO seemed almost downbeat talking about the task ahead: Transitioning to high-volume production that’s at least five times and as much as 10 times what the Silicon Valley carmaker builds now.

“It’s an amazing car, but we’re going to go through at least six months of manufacturing hell,” the somber billionaire told reporters a few hours before the handover celebration. “It’s going to be quite a challenge to build this car.”

Musk turned over key fobs to the first 30 owners – all Tesla employees – late Friday at its sprawling Fremont, California, plant. He’s all too aware that hundreds of thousands of eager buyers have waited more than a year to get the new Model 3, a small sedan with a base price half that of the flagship Model S.

The 3’s arrival is hailed by Tesla fans as a gamechanger for electric vehicles, the product that finally compels large numbers of motorists to forsake petroleum-powered cars for quiet, high-powered emission-free driving.

And while the newest Tesla lacks many of the high-end features of the S and X, it will still be a standout in its category with better acceleration, technology and looks than anything it competes with, Musk said. Production volume is another matter.

There are now more than “half a million net reservations” for the car, he said, his first update to that figure in more than a year. Filling all of those orders, which are still primarily from U.S.-based consumers, could take 18 months or more – assuming Tesla attains its goal of producing at a monthly rate of 20,000 cars by December.

To say there is skepticism within the auto industry that Tesla can reach the “S-curve” increase Musk seeks within five to six months is an understatement. And despite all the preparations that have gone into simplifying the design of the Model 3 for easy production, Musk almost shared that view on Friday.

“I have high confidence we will get to the S-curve, but it’s almost impossible to predict” when, he said. Adding, “there are factors beyond our control.”

As a new product coming off a new production line, Tesla not only has to perfect its factory floor techniques, but also prepare for potential disruptions in a supply chain that spans the globe. With about 30 percent of its components coming from abroad, output will be at the mercy of Tesla’s “worst” supplier, Musk said without elaborating.

“There’s no question that (Model 3) is a consequential achievement, but these are also very likely going to be almost hand-built cars for the initial period,” Mike Ramsey, an automotive tech analyst for Gartner Research in Detroit, told Forbes. “They are going to be hard to come be for a while, and I will be surprised if they meet their production target.”

Although Tesla has promoted the Model 3 as a $35,000 sedan, production for the first few months will focus on making the $44,000 Long Range variant with a battery pack that gives the car 310 miles of range per charge. Not as quick as a Model S, a 3 with that battery still accelerates from 0 to 60 miles per hour in a hasty 5.1 seconds.

If buyers add on charges for higher-grade paint, bigger wheels, a premium interior and audio system, enhanced Autopilot and even “full self-driving capability” – which arrives at an unspecified date – the cost tops out at $59,500. (That’s before taxes, registration, destination and delivery charges which would put the final bill well past $60,000.)

Few would consider that a mass-market price, but it’s half the cost of a top-end S or X.

In a brief test drive of a Long Range Model 3 with a premium interior, the car delivered the quick, responsive feel that’s become a Tesla hallmark. The spare interior, dominated by a large, horizontally mounted, flat-panel control screen in the center console, serves as the 3’s main piece of instrumentation. The spare layout is a big contrast from conventional cars in its price range, but doesn’t feel particularly cheap. The car’s glass roof that extends to the back of the vehicle adds a surprising amount of rear seat headroom and a roomy feeling.

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The interior of the Model 3 is dominated by a large flat-panel touchscreen in the center console.

It’s also a world away not just from the more conventional cabins found in gasoline-powered BMW 3-Series and Mercedes C-Class sedans, but also Nissan’s electric Leaf and General Motor’s Bolt, the closest competitor to Model 3. The small GM hatchback delivers better range than the base version of 3 of 238 miles per charge with a base price of $37,495 before tax incentives and rebates. It’s a delightful car, but doesn’t equal the premium mystique Tesla enjoys.

“In a very short amount of time they’ve become one of the most aspirational brands out there – on par with a BMW, Audi or Mercedes,” said Ed Kim, head of industry analysis for researcher AutoPacific. “You can’t overlook how much Tesla has accomplished in a relatively short amount of time, and the cachet around this brand.”

Buyers on the waiting list who are trading in Accords, Camrys or Priuses for their first Tesla won’t be disappointed by the Model 3’s ride and handling, based on a brief evaluation by Forbes.

But a critical goal for the company will be ensuring that reliability equals that of the dependable, mainstream cars Tesla’s new customers are giving up, Kim said.

“Model S and X buyer are very affluent, and probably own multiple vehicles. If there’s a problem and the car needs service, they have other options,” he said. “You’ll see many Model 3 buyers coming out of Camrys and Accords; very, very reliable. They start all the time. That’s what the Model 3 is up against.”

Model 3 buyers will qualify, at least for part of 2018, for a $7,500 federal tax credit. There’s a 200,000-car maximum per manufacturer to receive the full IRS credit, and Tesla is already more than halfway to reaching that level before Model 3 sales start. (After reaching that level it drops by half for the next two quarter, then by half again for two quarters after that, before disappearing entirely.) California, Tesla’s biggest market in the U.S., also offers rebates worth $5,000 for electric cars that will further improve Model 3 affordability.

The $35,000 base Standard version of the car goes into production later this year, with expected range of 220 miles per charge and 0-60 mph acceleration of 5.6 seconds.

Demand isn’t nearly as big a concern for the foreseeable future, as is the production ramp-up, Musk said, who said the company at this point is almost discouraging additional Model 3 orders right now. That’s because if someone orders one today, delivery isn’t likely until late 2018, he said.

Brightening toward the end of this remarks, he conceded “this is a great day for Tesla.”

“The goal was to make an affordable electric car that was better than a gasoline car. We finally have a great affordable electric car.”

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