Elon Musk principle to be ignored


Tesla has always been cautious of too much demand for its cars. But, as the years have now gone by the analysts and experts who have followed the company have are worried that there isn’t enough demand for Tesla vehicles. For couple of years now, nearly every quarterly conference call to discuss Tesla’s financial results with analysts, this issue has been constantly coming to head. When asked about it to the CEO Elon Musk for the company’s vehicles. And he said that demad has always been the same: Tesla doesn’t have a demand problem — if anything, Tesla has production issues. Musk usually clarifies that Tesla is “production constrained” — not “demand constrained.”

He then often segues to his view that Tesla can encourage demand whenever and wherever it wants. It’s a critical element of the way Tesla does business: The Company does not want the demand to get out of hand. Because, if the Tesla isn’t able to supply that demand, and customers have to wait to get their cars. The demand of Tesla cars will diminish. But analysts haven’t always believed Musk. There was a strong focus on Tesla demand at the end of the year 2014 and through all of 2015, as the automaker prepared to roll out its second built-from-scratch vehicle, the Model X SUV. The scrutiny implied that Tesla demand might not be as strong as Musk was suggesting.

We now know that Musk had been right all along all the way now, and that there was abundant demand for Tesla’s out there in the world. Anyone who had been doubting the untapped craving for the brand that was refuted by the pre-orders for the newly-unveiled Model 3: 400,000 and counting, at $1,000 just to the reserve a car. It’s not inconceivable that pre-orders could top and go beyond 600,000 — which is Tesla’s production target for all vehicles by the year 2020. This all raises an obvious question: Can Tesla actually build that many Model 3s and deliver them on time?

Miles to go Given that the company’s maximum production so far has been a bit more than 50,000 a year and that year was 2015, and that is than less than 100,000 in 2016, it’s clear that Tesla still has a long, long way to go to get to 500,000 mark in upcoming years. The Model 3 debut unleashed the demand that Musk was always talking about as a key worry for the company. It also made that demand real — in the past, it has been vague. If half a million people are willing to donate $1,000 to Tesla for an indefinite period of time, it proves that the Tesla market is ample. Now, one might argue that all of those pre-orders, which could bring more than 15 billion dollar revenue into Tesla’s coffers if the company can make it on the production, represent all those Tesla wannabe early adopters who couldn’t swing the $100,000 purchase price of a Model S or Model X. Once that group is exhausted, perhaps Tesla will have captured all the customers that currently exist. Well, maybe. Or perhaps the Tesla market is in fact HUGE. At least, far larger than it had looked up to the Model 3 reveal. One thing is sure: Musk and his team didn’t ease us into exploding demand. They flipped a switch and let it flow. One of the other possibility is that it should be outsourced by some Model 3 production to a partner into the manufacturing space. But then Tesla would also collect less money on what’s already going to be a car whose profit margins won’t be as robust as the Model S or X’s have done for the company.