Blog: Dave LeggettTesla charms again

Dave Leggett | 6 April 2016

I just looked at Tesla Motors stock price and it’s been moving up since February. The Model 3 unveil last week has given the stock some additional upward momentum. It’s a very good story. Sexy electric cars and a truly huge battery making plant in the desert will make the company - still losing money now - hugely profitable. Jam tomorrow, but plenty of it, potentially. So, wouldn’t you think that the frank admission of production issues right now – that meant a recently introduced model undershot volume forecasts - would worry investors? This is an interesting one. What if you come clean and explain the nature of the problems and then add that you have resolved the issues? Maybe then investors will still think you can do no wrong. Apparently so.

As far as investors are concerned, it looks like Tesla has ridden the problems – ‘severe parts shortages’ – on the Model X that dented first quarter sales numbers. The extraordinary statement from the company gets the bad news out there and explains why it happened and that it is resolved now. Tesla had said it would ramp up slowly on the Model X – which was delayed on its initial timeline - to get everything about its production right. It has now admitted that it over-did the design to the detriment of production efficiency and that it got some things wrong. Execution did not go entirely to plan.

How does this augur for the much higher volume Model 3? It underlines how difficult it is to make a car, any car. Tesla is new to the game and has high-tech EV products. But it is learning as it goes. Thus far, its cars have been well received and are not noted for quality or reliability issues. Tesla can say that it undershot Model X production in Q1 precisely because it is maintaining high standards. The hope has to be that the learning experience with each model – design, engineering, production engineering - is taken into the next one. Continuous improvement.

And Tesla has behaved with disarming honesty (smart, though) to publicly talk about its problems. I can imagine some PR people would have handled it differently. Tesla, though, is a different kind of car company. Musk talks about open-sourcing and frequently talks down the share price. This is an unconventional ride from a guy who is not short on vision and, in a nod to Monty Python, has put a cheese into space and got it back again (sorry, I cannot resist mentioning that whenever I can). The Model 3 unveil last week could be described as Apple-esque. The future number projection are large. Investors remain well and truly charmed.

But the pressure to execute and deliver on second quarter deliveries is higher than ever.

See also:

Tesla cites its own ‘hubris’ behind slow rollout of Model X

COMMENT - The make or break road ahead for Tesla’s Model 3

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