Moneybox

Tesla’s Unmet Promise

The electric car company is riding high after a record quarter. But it still hasn’t built a $35,000 car.

Elon Musk attends the 2018 SpaceX Hyperloop Pod Competition in Hawthorne, California, on July 22.
Elon Musk attends the 2018 SpaceX Hyperloop Pod Competition in Hawthorne, California, on July 22.
Robyn Beck/AFP/Getty Images

Tesla has been careening down a treacherous road at high speed for years now. This week, it may have finally turned a corner.

Elon Musk’s high-flying, polarizing electric car company on Wednesday reported record quarterly revenue and profit, which might be just enough to squeeze through its latest financial straits without having to raise more money. It is finally delivering its long-awaited Model 3 sedan to customers who have been waiting months or even years since pre-ordering it, and it says fewer than 20 percent have canceled their orders. It recently settled with the Securities and Exchange Commission in a deal that forced Musk to step down as chairman but allowed him to stay on as CEO (a blessing disguised as punishment). In a conference call with investors Wednesday, Musk sounded calm and collected for the first time a while.

In short, Tesla may be putting behind it the roughest patch of road in its history and begin delivering on its audacious founding promise: to revolutionize transportation by building electric cars for the mass market. Musk called it a “truly historic quarter” for the company, and effused about the Tesla owners who had volunteered in recent weeks to help the company meet its Model 3 delivery targets. “Really chokes me up,” he said.

There is, however, one crucial promise that Tesla still hasn’t delivered on. It’s the company’s pledge to make electric cars affordable—specifically, to build a $35,000 Model 3.

Buried beneath the positive headlines Wednesday was Musk’s acknowledgment that the company is not yet capable of building a Model 3 at that price. And it probably won’t deliver one until February or March 2019.

The Model 3 has been known as the “affordable Tesla” and the “$35,000 Tesla” since before it was even known as the Model 3. The company’s fourth vehicle—after the limited-edition Roadster, the luxury sedan Model S, and the luxury SUV Model X—was always meant to be the one that finally put electric cars within reach of the middle class. It’s the one that holds the key to Musk’s dream of using electric cars to expedite a global transition to a “solar electric economy.” So when Musk finally announced the Model 3 in April 2016, many were gratified to see that it would indeed cost $35,000. Customers signed up in droves.

But as the time approached to deliver the Model 3, it became clear that it would not in fact cost $35,000—not at first, anyway. Tesla first took orders on a higher-end version with a long-range battery that nominally started at $49,000 before tax rebates or incentives, but quickly soared past $60,000 with options. Fully loaded, the price approaches $80,000—making it comparable to the luxury Model S.

Last week, Musk announced a mid-range Model 3 with 260 miles of range and a $46,000 price tag. If you count all the possible federal and state discounts it could come to $35,000, but only until the end of this year, when the federal tax credit begins to ramp down.

In any case, a price of $35,000 after incentives was not the pledge Musk made. He has long said the car would start at $35,000 before incentives. And he’s still saying that will happen.
Just not yet.

“Our goal is to make electric cars everyone can afford,” Musk said Wednesday. “If we could produce a $35,000 car today, we would do it.” But, he said, “there is more work to do,” and it probably won’t be ready for another six months.

The problem, Tesla says, is that the company would lose money on a $35,000 car if it built one now. It needs to make its production more efficient—and design a cheaper battery—in order to turn a profit. And the company’s enormous debt means that it needs all the profit it can get right now.

There have been some other disappointments amid the company’s financial turnaround. Last week, it eliminated an option to preorder a fully self-driving Tesla, which it had been offering as an extra feature for $3,000 to $5,000. Musk said it was due to “confusion” on the part of buyers, but it seems more likely that the company belatedly recognized that full autonomy is not coming anytime soon.

All of that can be overlooked, for now, in the scheme of things. And in the long run, it will be mostly forgotten if the Model 3 proves as big and as enduring a hit as the Model S. After all, most people have already forgotten that the Model S was originally billed as costing less than $50,000.

What Tesla has done with the Model 3 is classic Musk. He makes promises so ambitious that it would take something close to a miracle to fulfill them. He runs perpetually behind schedule and on the brink of ruin, and the ranks of naysayers swell. And then, at last, he delivers on some of the biggest promises, prompting such awe and surprise that it feels almost churlish to focus on others that remain unmet.

Still, this is one promise that shouldn’t be allowed to slide for too long. It’s tremendous that Tesla has managed to sell large swaths of the public on electric cars and paved the way for other automakers to do the same. The company can probably be wildly successful for years to come just by building expensive Model 3s for people with the means to buy them. But Musk’s master plan won’t truly be realized until a Model 3 costs what the company has always said it would.