Over the last few days we have seen significant volatility in the Tesla share price although it ended the week relatively strong. There was a sell-off down towards $330 level on news of production delays to Tesla’s Model 3 mass-market vehicle. On the surface these delays are disappointing, there is no doubt about that, but if you dig a little deeper, things may not be as bad as they seem!
Production is ramping up
Within the next 12 months Tesla is expected to go from producing hundreds of vehicles a week to a staggering 5000 vehicles per week under a new manufacturing system. This has caused significant cash burn for the company which has raised billions of dollars over the last few years. However, the fact that the ramping up of production of the Tesla Model 3 has been put back should not be seen as a major disappointment. After all, the majority of analysts fully expected the timescale to slip!
It is also interesting to learn that Tesla has put back the launch of its much awaited electric truck and again this is not necessarily a major issue. The fact that the company seems to be clearing the decks to ensure that the Tesla Model 3 comes first should not be overlooked as well as the massive impact on cash flow. There are concerns that a drop in gross margin to below 20% in the third quarter could indicate further problems below the surface but this is unlikely to be the case with gross margins expected to improve fairly quickly.
Time to walk the walk
Tesla has talked the talk and now it is time to walk the walk. The company has raised billions of dollars from shareholders, seen slippage in production schedules of late and still continues to attract both positive and negative comments from analysts. Sometimes it is easy to forget how far Tesla and Elon Musk have come in a relatively short space of time. They have revolutionised the electric car industry, raised billions from investors all under a dark cloud of criticism from the mass media and those with possible vested interests against the company.
It is also easy to forget the confidence which consumers seem to have in the company and especially the forthcoming Tesla Model 3. The company took a fortune in downpayments for the Tesla Model 3 and while there will be some delays in delivery we are unlikely to see too many people fall by the wayside. This car is revolutionary, this car is the future and the mass-market appeal is second to none in what is still a relatively young electric car market.
Summary
Elon Musk continues to provoke an array of different comments, attitudes and criticism/praise in equal measures. He is a man who has been there, done it and has many T-shirts to wear. The Tesla CEO has most certainly put his money where his mouth is and, let’s be honest, how many other companies have a CEO with as much to lose?
Whether or not Tesla breaks into the mass market, starts making profits and continues to build for many years to come is unclear at this moment in time. What is clear is that Tesla stands on the verge of cracking the EV mass market, delivering hundreds of thousands of vehicles a year and perhaps most impressive, taking on the establishment and winning.