In the wee hours of Monday morning on the East Coast and around midnight in California, Tesla CEO Elon Musk fired off a series of tweets confirming that the carmaker’s $US35,000 Model 3 will commence production in July.
Tesla will deliver the first 30 vehicles to customers at the end of July, and Musk maintains that production will rise to 20,000 cars per month by December — that would be just a few thousands less than Tesla typical current quarterly output for its Model S sedan and Model X SUV.
Tesla has never launched a vehicle on schedule, so if the company can assemble 30 roadworthy Model 3s in a month — not a tall order — then it will make history. Both the Model S and Model 3 were delayed for years.
Launching the vehicle isn’t really the challenge this time around, however. Building it in significant quantities is. Tesla has something like 400,000 pre-orders for the car, and at 20,000 units per month, it would take about two years to satisfy that initial demand.
No one should diminish Tesla achievement here. It’s a small-volume, niche automaker selling $US100,000 luxury electric vehicles. Taking on the mass-market shows impressive gumption and is a cornerstone of Musk’s vision for a future freed from fossil fuels.
That said, the Model 3 has two key problems.
The first is that it’s a small sedan — and small sedans are unpopular in the current US auto market. Customers want compact SUVs, and Tesla won’t have one of those to sell, the Model Y, for at least a couple of years.
The second is that the Model 3 is launching into a plateauing US sales environment. After record sales years in 2015 and 2017, when over 17 million vehicles rolled off dealers’ lots, the market is now constricting and heading for a cyclical downturn.
Tesla will probably be able to capitalise on early-adopter and marginal demand with the Model 3’s first full production year, but the company is going to need sustained sales at fairly high levels for several years to build up any market share, a tricky proposition if mass demand is sluggish in 2018 and 2019.
It’s possible that there’s unrealized Model 3 demand out there, of course. Some consumers may be holding off on the purchase of a new vehicle now to be able to buy a Tesla Model 3 in a few years. But the longer they have to wait, the less likely that analysis will turn out to be accurate.
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NOW WATCH: Tesla will reveal the finished Model 3 in July — here’s everything you need to know about the car
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