Even Elon Musk had no idea that pre-order levels for the Tesla Model 3 would reach anywhere near the current number of 325,000. This has given the company over $300 million in pre-order down payments, with orders now valued in excess of $10 billion. This is a phenomenal effort by any stretch of the imagination with initial forecasts for around 55,000 pre-orders. So, what does this mean for Tesla in the short to medium term?
Research shows that less than 5% of the pre-orders relate to individuals pre-ordering two or more vehicles, so there are literally hundreds of thousands of customers. It is difficult to estimate at this moment in time how many will follow through with their orders as the deposits are refundable. However, if just 50% of those pre-orders followed through this would equate to in excess of 150,000 Tesla Model 3’s on the roads.
There is no doubt this is going to be a major challenge for Tesla and perhaps one the company had not expected.
It is well-known that Tesla has been increasing both battery and plant capacity over the last few years as a means of ramping up volume to reduce production costs. We will see in the next year or two, whether the company has sufficient capacity to fulfil ever-growing order numbers or whether it will struggle. If this was anybody but Elon Musk it would be tempting to say it would be impossible to fulfil all pre-orders in an acceptable time scale, but this is a man who does everything his own way and very rarely fails.
Just after the launch of the Tesla Model 3 Elon Musk commented that the company would need to reappraise pre-order levels and delivery timescales. Since this statement, here has been no further word from the company about how they plan to fulfil all the orders. However, it would be foolish to write off Elon Musk!
Make or break for the industry?
Sceptics believe that the company will struggle to fulfil pre-orders and cash flow issues could come to a head. However, on the cash flow front Tesla already has in excess of $300 million in additional funding from the $1000 deposit per vehicle. Each vehicle is priced at around $35,000, therefore the more vehicles the company is able to produce the less pressure on long-term cash flow.
There are wider implications for the electric car industry because Tesla has been the leader for many years and broken many taboos with regards to traditional fuel powered vehicles. If the company is successful and able to deliver pre-ordered Tesla Model 3’s in an acceptable time scale then this will be a massive boost for the industry going forward. On the flipside, if there are production problems, faults with the vehicle or it receives negative feedback, then this will reflect very badly on the electric car industry as a whole.
Make no mistake, the next couple of years are a pivotal point for the electric vehicle market and Tesla is leading the way. Will Elon Musk prove his doubters wrong as he has done time and time again?