A difficult road ahead for Tesla

According to Business Insider, the sustainability of the electric car company Tesla could be at stake in 2018. The business site refers to the recent troubles of the Californian manufacturer to support his claims. From debt financing in February to April’s failed production targets, the company has several challenges to overcome in order to maintain the confidence of investors and the general public.

The costs associated with producing their most recent car are one of Tesla’s current challenges. The production of Model 3 (low-end model valued at $ 35,000) is slowed down by inefficient battery production at Gigafactory in Nevada. Leaks indicate that 40% of the raw materials must be discarded or modified before being sent to the assembly plant in California. According to Business Insider, this amounts to $ 150 million wasted, to which must be added electricity and labor costs. 9,766 Model 3 cars were manufactured during the last quarter.

For Tesla, there is no reason for concern. In a statement, the manufacturer says that the rate of wasted batteries has dropped by 60% since January and that the manufacturing process is constantly improving. “We always have to keep in mind why we have this garbage, and it’s because we only select top quality parts to create the best cars,” says the statement.

For Yan Cimon, management professor at Laval University, Tesla will have to work hard to achieve its initial objectives: “Model 3 is kind of a failure, because by looking at Tesla’s plans, we can see they wanted to deliver 10,000 vehicles per week, he argues. They are around 2000 right now, and sometimes even below this threshold. It’s a long way from the initial goal”. In an interview with CBC/Radio-Canada, Cimon said the company’s scattered activities (energy storage / solar energy) may have inflated its debt.

Tesla CEO Elon Musk still expresses confidence in his company’s ability to produce 5,000 Model 3 sedans by the end of the month. “These last few months have been the most horrible I have ever lived(…) but I think we can get there,” he said at a general meeting on June 5. Bad press was a big source of concern during the meeting. Following the accidents involving the semi-autonomous driving system of their cars, the financial situation of Tesla and the tweets of Mr. Musk, the image of the brand must recover to face the difficult months ahead.

According to Reuters, “Tesla shares have fallen nearly 8% since the beginning of the year and 25% from it’s highest point in September  […]”. On the consumer’s side, about one-quarter of reservation deposits have been refunded. Since April, 29% of deposits for Model 3 have been returned to potential buyers. According to data compilation company Second Measure, only 8% of customers who had reserved bought a Tesla car.

As stated by a Tesla spokesperson, “the Second Measure data does not align with our internal data”. The ad does not specify the gap and differences between the two analyses. In August 2017, the company estimated its refund rate at 12%. A lot of the recent cancellations occurred in April, following statements by Musk, explaining that delivery of the Model 3 would be delayed by six to eight months.

Concerns are piling up

Several other problems have tarnished the company’s headlines in recent months. In March, Tesla recalled 123,000 Model S, because of problems with the power steering system. In the same month, driver Walter Huang died in an accident involving a Tesla car. Moody’s Financial Analyst downgraded its credit rating from B2 to B3 due to concerns over production targets for Model 3. Stock prices dropped and rekindled concerns of a possible bankruptcy for the manufacturer of electric automobiles. Elon Musk’s incendiary retorts in face of criticism also set fire to the powders.

According to Business Insider, Tesla’s past success is largely due to the figure of Elon Musk. Motivating and skilled in the expression of his vision, the man created a story that rallies investors and consumers. “That Musk can reach the heights of his claims will determine whether 2018 paves the way for another improbable triumph or serious questioning about the future of his business.”

Photo credits: Tesla Motors Facebook page

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