The following content is sourced from external partners. We cannot guarantee that it is suitable for the visually or hearing impaired.
(Bloomberg) -- Tesla Inc. is about to enter the road through hell, and it’s paved with intentions to make a whole lot of electric cars.
That’s how Elon Musk describes the task of meeting the lofty targets he’s set for the Model 3, a cheaper sedan that the future of his company rides on. Demand won’t be an issue -- reservations for the car now exceed 500,000, according to the Tesla chief executive officer. The herculean undertaking ahead will be to produce the vehicle at a scale the automaker has come nowhere close to achieving to date.
“The biggest challenge that we face here is ‘S Curve’ manufacturing,” Musk told reporters Friday, describing a ramp up of production that starts slow, increases dramatically and then tapers off at a high level. “That ‘S’ portion is us going through hell, basically.”
For Musk, making affordable cars at a scale that allows his company to further drive down the costs of electric transportation would mark the culmination of a master plan he sketched out for Tesla more than a decade ago. The progress he’s made thus far in executing that vision has catapulted his company’s market capitalization past the valuations of carmakers that have been around more than a century, including Ford Motor Co. and General Motors Co.
Musk has managed to keep investors enamored despite manufacturing hiccups that have bedeviled Tesla on a regular basis. The production shortfall of new bigger battery packs that the company cited when reporting underwhelming sales figures earlier this month was just the latest example.
Tesla’s CEO nonetheless is standing by Model 3 production plans, including making 20,000 a month in December. The first 30 roughly customers -- which are company employees -- took delivery Friday at the carmaker’s lone auto assembly plant in Fremont, California.
“I have high confidence that we’ll get to the end of the S curve, but it is impossible to predict the shape of it,” Musk said before the event.
After reaching 20,000 cars a month in December, Tesla’s planned manufacturing ramp up will be even more dramatic. Musk wants to make 500,000 cars in 2018, then a million in 2020.
Tesla sold about 76,230 vehicles globally in 2016.
“The rate of the Model 3’s production ramp up has never been accomplished, even by high-volume automakers with far more experience,” Karl Brauer, executive publisher for Kelley Blue Book and Autotrader, said in an email. “Musk’s fans already see him as genius inventor Tony Stark. A year from now, if he hits the goal and is selling half-a-million cars to overwhelmingly satisfied customers, even the skeptics might dub him Iron Man.”
Tesla has dramatically simplified its manufacturing processes, Musk said, to where the same factory space where it can build 50,000 Model S sedans or Model X sport utility will be able to produce 200,000 Model 3s.
“The key fundamental question is whether Model 3 can be delivered in volume, at decent margins and with good quality,” Toni Sacconaghi, a Sanford C. Bernstein analyst, wrote in a note to clients Thursday. “Tesla has an established pattern of over-promising and under-delivering on the timing of key achievements.”
The Model 3 will start at $35,000 for 220 miles of range, with a bigger battery version selling for $44,000 that will be capable of 310 miles of driving between charges. Deliveries of the more expensive version will start first, with those of the base car beginning in the fall.
At those prices, the Model 3 will face off against a fierce competitive set of entry-level luxury sedans from the likes of Audi, BMW, Lexus and Mercedes. While Tesla fans object to the idea that those brands’ electric offerings will pose a threat, Barclays auto analyst Brian Johnson advises against counting them out.
“No doubt the premium carmakers need to play a better PR game vs. Tesla,” Johnson wrote in a note to clients Friday. “We think the traditional auto industry is fighting back and will have the ability to make profitable, electrified vehicles on a five-year view.”
--With assistance from Tom Randall
To contact the reporters on this story: Dana Hull in San Francisco at firstname.lastname@example.org, Alex Webb in San Francisco at email@example.com.
To contact the editors responsible for this story: Craig Trudell at firstname.lastname@example.org, Anne Riley Moffat, John McCluskey
©2017 Bloomberg L.P.