During the press conference following Tesla’s Q4 earnings report, Elon Musk took a moment to reflect on its newest car, the Model X SUV. Some have been critical of Tesla’s decision to build the Model X, which ate up a lot of money and time before it went into production. The detractors say the company should have focused on bringing its new, lower priced sedan to market instead.
In a rare moment of humility, Musk admitted that perhaps the company had gone overboard on the Model X, insisting it have every conceivable new technological feature imaginable all at once, rather than putting it into production and adding enhancements over time. He went so far as to say there was some “hubris” involved.
He admitted that solving all the technical and engineering problems that went into making it was an “excruciating” process, one that required lots of late nights and working weekends. In the end, though, he feels all the hard work was worth it.
“Model X is an amazing car. [It] is the best car ever,” said Musk. “I’m not sure anyone’s going to make a car like this ever again. I’m not sure Tesla would make a car like this again.”
Later, Musk confirmed that the Model 3, the smaller sedan that is supposed to be an affordable mass market car, would be unveiled on March 31. He said he and his team weren’t sure yet whether to “show all our cards” at that time. He had said previously that the company might not show the entire car during the event, but would parcel out details as the production date got closer.
Tesla has confirmed the car will have a starting price of $35,000. But Musk admitted at the press conference that the first cars produced would be more expensive, fully optioned versions.
“Our default plan, as we have done in the past, is that the initial sales are relatively highly optioned versions of the car, because we’ve got to pay back the investment of the tooling and everything. So it makes sense to have the higher optioned versions first. That’s what we did with the S and obviously again with the X.”
The price of the Model 3 will be roughly half that of the larger Model S. Musk says the company will realize the cost savings it needs to make the Model 3 profitable from a combination of economies of scale and because the Model 3 has been optimized for production from the beginning.
The Model S was designed first. Figuring out how to manufacture it came later, which made it more expensive to build.The Model 3 will be manufactured using mostly steel. The Model S and Model X are made from more costly aluminum.
Musk said the factory in Fremont, California was capable of building 500,000 cars a year. In fact, it already did so when General Motors and Toyota used it to jointly produce automobiles. He suggested that recent upgrades to the paint shop would allow 10,000 cars a week to be prepped and painted there.
Another factor contributing to the lower price of the Model 3 is that its batteries will be manufactured at the Tesla Gigafactory in Nevada. That giant facility is designed to integrate all aspects of battery manufacture under one roof. That is expected to lower the cost of batteries made there by 30%. In addition, the cost of some of the metals used to manufacture batteries, particularly nickel and aluminum, have fallen lately, although the price of lithium has not and may move upward in the future as worldwide demand for batteries increases.
Overall, Musk says Tesla plans to build between 80,000 and 90,000 cars this year. He was especially proud of the fact that Model S is outselling premium luxury cars from Mercedes, BMW, Audi, and Porsche, even in markets like Switzerland that do not have any electric car incentives in effect.
Detractors are already pointing out that the company continues to spend money like a sailor on shore leave and that it once said it would build 100,000 cars in 2016. But Tesla is about more than just cars.
It has begun delivering its Powerwall and Powerpack electrical storage batteries to customers in Germany, Australia and the US. It says those products are already making a profit. Worldwide, the market for storage batteries is far bigger than the market for electric cars. They are key to transitioning away from electricity made from fossil fuels to electricity from renewable resources.
People often forget that Tesla is not a car company. It is a battery company that also makes cars. Elon Musk may be famous for rosy predictions and opitmistic time lines, but he is a unique person with an unshakable faith in himself and his vision. It may take him and his company longer to reach their goals than anticipated, but reach them they will.