Elon Musk has a bad habit. The celebrity CEO has a tendency to overpromise when it comes to product timelines. This is why several Tesla (NASDAQ:TSLA) vehicles have been late to market relative to their initial expected launch dates.
The initial Roadster was delayed several times due to production challenges, and there was even a price increase that didn't sit too well with early customers who had already put money down to reserve the electric sports car. Relatively speaking, the Model S was mostly on time, although the production ramp took a lot longer to build and lower-capacity variants were delayed. Model X was arguably the worst offender of the trio, launching a full 2 years late after numerous delays.
This track record of tardiness is largely why some analysts, investors, and consumers are expecting the forthcoming Model 3 to similarly be late. Here's why that assumption could be misplaced.
First off, you need to consider why each of Tesla's past three vehicles have been delayed in order to assess whether those underlying reasons are even relevant to the Model 3.
Tesla was a small Silicon Valley start-up producing the first high-performance battery electric vehicle to run entirely on lithium ion batteries with a range of over 200 miles. The Roadster was the first of its kind, and Tesla literally had no manufacturing experience at that point in its history. Of course it took a long time and went over budget. By its own admission, the company made many mistakes in the early days, including things like merely estimating component costs instead of soliciting firm bids from suppliers, among others.
Model S was the first car that Tesla designed from the ground up, moving away from its partnership with Lotus that it used for the Roadster. But Model S volumes were meaningfully higher than Roadster volumes, since a 4-door sedan inevitably has a larger market and more demand than a 2-seater supercar. This time around, manufacturing larger volumes was the biggest hurdle, since Tesla had no experience producing this number of cars. Even today, Tesla's overall volumes (which are predominantly Model S units) are a minuscule blip in the grand scheme of the auto industry, but the company had to work incredibly hard to get here.
It was way back in 2012 that Tesla unveiled the Model X, initially targeting a 2013 launch. Needless to say, that didn't happen. Not even close. The electric SUV saw numerous delays for a wide range of reasons, even though the vehicle is based on the same platform as Model S. Musk has admitted that Tesla over-engineered the Model X, packing in so many features that each led to production delays and engineering hurdles. In hindsight, Tesla probably shouldn't have included all of these features in the first Model X vehicles, according to Musk on the last conference call. There was a certain amount of hubris that went into shooting so high with Model X. In many ways, Model X is more complex than Model S. Think of the falcon wing doors (Tesla is currently suing the initial supplier because they were unable to deliver, which contributed to delays) or the ultrasonic sensors that see through metal.
Simply put, no one had ever built a car like the Roadster before, Tesla had to learn how to ramp manufacturing with the Model S, and the Model X was overly ambitious. None of the above apply to Model 3.
Fourth time's the charm
On the contrary, the Model 3 is very specifically being designed and engineered "for ease of manufacturing." After all, ease of manufacturing is a requisite for a car that Tesla hopes to make half a million (or more) of every year.
Tesla has gotten quite good at making the Model S, and Model 3 is "quite a bit less complex to manufacture than the Model S." That's in part due to the fact that Model 3 will be about 20% smaller and won't have as many tech features as the Model S. This is the key to hitting the late 2017 target. Tesla continues to reiterate that everything is on track, but you need to appreciate why it really is different this time around, as opposed to assuming that Tesla will always be late on its promises. As an executive, you have to figure that Musk has learned his lessons from over-promising in the past, too.
As far as the critical $35,000 price point is concerned, the biggest contributing factor there is the Gigafactory. The good news is that Tesla's massive battery factory is ramping ahead of schedule, and right now investors "should not worry about the Gigafactory as a constraint on Model 3." In fact, Tesla's important and closely guarded $/kWh figure is lower than what most people estimate, according to Musk.
So from a design, engineering, and manufacturing standpoint, the Model 3 should be relatively easy compared to the S and X. From a cost standpoint, the Gigafactory looks extremely promising. Of course, none of this is to say that delays are impossible. Life can always throw a curve ball. But Tesla has better odds than ever before on hitting its mark.
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Evan Niu, CFA owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.