With all hype aside, I am going to analyze the Model 3 as an engineer and as a industry professional who works with lithium ion batteries.
In the short time after the launch I was thinking of significant impacts Model 3 will have on the industry. So let us start with introduction of the Model 3. In a typical Elon Musk presentation, Tesla presented the company vision and mission with Roadster, Model S, Model X and under cover Model 3 pictures.
You can watch the event summary prepared by www.theverge.com here.
So now you have an idea of what the car offers and what a giant leap it is compared to other cars currently available.
With 215 mile range, 0 to 100 kmph in 6 seconds, beautiful design, $35,000 price and strong Tesla brand, Tesla will eliminate any excuse for not buying an EV.
Now the buyers will not question whether electric car is feasible but will discuss which car to buy. Now buyers have strong options of Nissan Leaf, Model 3, Chevy Bolt, BMW i3 and many other cars that will be launched as a response to Model 3.
Model 3 price point will force other vendors to either match the design and technology or lower the price which means we can look at 200 mile electric vehicles at $25,000. Any price higher than that and you are competing with strong brand of Tesla. This will be transformational for the industry.
Range Anxiety is thing of past
With 215 mile minimum electric range and Supercharger capability, Tesla model 3 will have the most robust electric vehicle ecosystem. I have always mentioned in my blog posts that to defeat gasoline cars you have to create electric ecosystem and Tesla is on the cusp of achieving that. 215 miles is a lot of range. Average driver in US daily drives around 60 miles. 215 mile range means you do not need to charge everyday, this is huge. It also makes long distance driving a possibility.
Competition will respond
BMW, General Motors, Toyota and Honda are not going to keep quiet and allow Tesla to capture all the market. These companies may not be as cool as Tesla but they are in this business for decades and have solid engineering teams. These companies are going to respond with strong product offerings. They will leverage their manufacturing capacities, strong dealership networks and consumer brand loyalty to challenge Tesla.
Driverless cars are coming
Tesla Model 3 is going to come standard with Tesla Autopilot feature. This is another huge technological breakthrough. Typically lane departure warning, blind spot detection and other safety and driving assistance features are reserved for luxury segments but with launch of Model 3, Tesla will bring those features to mass market. The amount of data that will become available to Tesla by all Model 3, Model S and Model X driving around with this feature on the road will add tremendous value to their driverless car project.
Lithium battery will win the market
Tesla’s focus on controlling supply chain and building massive lithium ion battery manufacturing will help the complete lithium ion supply chain. More investment will flow in downstream mining, transport and manufacturing of lithium ion base materials. As car competitors are going to respond by building electric cars, battery manufacturers are going to respond by adding investment in their battery manufacturing capacities. LG chem, Samsung, BYD and others are going to double down on manufacturing lithium ion batteries. This will reduce the battery cost and which in turn will improve the deployment across multiple applications.
As an engineer I am trained to be conservative about future. So putting my critic hat on, not all about this announcement is rosy. There are multiple challenges that are facing electric vehicle industry.
Execution is key
Tesla has already received reservations for 200,000 cars. Elon Musk has promised cars will start delivery at the end of next year. That will put tremendous pressure on Tesla’s manufacturing team. Model S and Model X launches were delayed due to difficulties in manufacturing. Tesla has never made 200,000 cars per year. Delay in shipment may lead to disappointed customers which will not be healthy in the long run. Ramping up production will also mean retooling of factories which inturn will mean more downtime for Model S and Model X production.
Tesla may be doing cool stuff but they lost more than $450 million last year and will lose more money this year as they ramp up the Model 3 production. Although there is no immediate danger of having a cash crunch, you cannot continue to lose money if you want a sustainable business. People compare Tesla to Amazon but Amazon makes tremendous amount of money on their cloud business. Tesla does not have that high margin product to support electric car business. General motors have gone through one bankruptcy and same is the story with other auto makers. So Tesla will need to focus on profitability very quickly once Model 3 hits the road.
Disrupting the industry is great but that also means you have far more enemies than friends. Tesla’s constant fight with dealership networks means that they will face resistance in expanding all across US. Running company owned stores is manageable when you have 1000 or so stores but Tesla will need tens of thousand of dealerships to leverage the potential of Model 3. So they will have to find a way to work with dealership industry.
Lithium battery pricing
People like to use Moore’s law for price of battery to predict $100/kWh. But you have to realize that batteries are not semiconductors. Batteries require advancement in chemistry and material science to achieve lower cost, this will take time. Commodity pricing of copper, aluminum and steel may rise in the future as world economy grows which will increase the battery cost. That poses a risk to Tesla as they are taking reservations at $35,000 for their car.
Wild Card of Apple
Rumor mill is on for a long time that Apple is building electric car under project Titan. Tesla may have fans but if Apple enters the market then it will be a different game. Apple will not care about losing money for few years as their iPhone and Mac business brings in profit and competing will be tough for Tesla. Apple has tremendous brand loyalty, brand recognition and manufacturing capabilities.
These challenges are not trivial but we have seen Elon Musk drive past many such challenges. As an industry participant, I congratulate and admire energy and dedication of the company to make electric car for everyone. Next few years will be exciting for the industry and I will like to wish Tesla best wishes. Tesla’s success is critical for entire electric vehicle industry.