When I first drove the Tesla Model 3 in March 2018, I attracted so much attention from the denizens of Los Angeles that it bordered on embarrassing. The hoi polloi of Beverly Hills walked right by Lamborghinis and Aston Martins to ogle the Tesla. They even wandered into traffic to get a closer look at Elon Musk's new, more affordable, supposedly mainstream sedan. Nine months later, Angelenos have returned to their car-jaded selves. You can't spend five minutes in LA without spotting a Model 3. And that ubiquity signals just how much Tesla has achieved in the past year.
The automaker has had a tumultuous 2018, much of it centered around Musk, his moods, and his tweets. Just for a moment, though, put aside Musk’s aborted plans to take the company private; his ill-advised tangles with the SEC; out-of-left-field cave rescue missives and insults; bizarre interviews; pot smoking; and on and on. If you focus on Tesla the company, then 2018 has been very good indeed. And it couldn't have come at a better time: Musk himself admitted that a successful ramp-up of Model 3 production was key to the success of his young company.
Tesla won't release official figures until the new year, but Kelley Blue Book estimates the company had sold about 160,000 cars (including models S and X) through the end of November. “Last year was around 50,000, so it’s more than triple the sales," says KBB analyst Tim Fleming.
The driver of that tripling is, of course, the Model 3—which Tesla launched in July 2017 but didn't produce in big numbers until this summer. Musk warned of impending "production hell" when he handed over keys (cards, actually) to the first 30 Model 3 owners at the launch. He called it right. The company had major problems at the Nevada Gigafactory, which makes the battery packs for the cars. Musk later admitted he'd pushed too hard for extreme automation, and replaced robots with humans, ripping out a "flufferbot." Eventually Musk had employees erect an extra, almost entirely manual, production line in a tent in the parking lot of Tesla's California factory.
Eventually, though, Tesla got on track. It started building 5,000 Model 3 cars per week, the rate that Musk had noted as a benchmark. You can now get one starting at $45,000, and Musk says the $35,000 version, with fewer features and lower range, will arrive in 2019. (Caveat: Musk has a rocky relationship with deadlines.)
The current price point puts the new Tesla in KBB's "luxury" bucket, but that hasn’t stopped people buying the Model 3. “It will be the top-selling luxury vehicle this year,” Fleming says. That's against all luxury vehicles, crazy popular SUVs included. The next best-selling car, the Mercedes C-Class, comes in seventh. Tesla sold 2.5 times more Model 3 vehicles than BMW sold 3 Series. It's a remarkable achievement, and stands in contrast with the moves by Ford and GM to stop making small cars and sedans in the US.
Success and longevity, however, don't always arrive in tandem. The big question is whether Tesla can maintain this momentum in 2019 and beyond. A few factors could have made 2018 an anomaly. There was huge pent-up demand for the Model 3—some 400,000 people placed $1,000 deposits to be on a waiting list. Many of those prospective purchasers are still on there, holding out for the cheapest version. But an estimated 115,000 have now bought the long-range, all wheel drive, or performance version they wanted. As Tesla drains its reserves of eager buyers, it will have to keep expanding its appeal.
Even as Musk works to push prices down, Tesla customers in the US are about to lose their right to the $7,500 federal tax credit that comes with buying an electric car. After a manufacturer sells 200,000 eligible cars, the credit phases out, over the course of a year. Tesla is the first automaker to cross the threshold, so analysts like Fleming will be watching for an impact on sales. “We’re going to learn it first with Tesla,” he says. (Tesla has joined forces with GM and others to lobby for an extension.) Maybe customers won't mind spending the extra money, or Musk will cut prices to keep sales buoyant. He's also planning to start Model 3 sales in Europe, home to another chunk of reservation holders who don't have to worry about US tax credit policy.
Meanwhile, the competition is finally starting to catch up. Buyers looking to go electric can pick from a growing range of models. Jaguar’s I-Pace is already on the market; Audi’s E-tron will be available in early 2019. At the cheaper end, the popular Nissan Leaf will get a longer-range battery option. These cars—which reviewers have so far enjoyed—are often billed as Tesla competitors, or even Tesla killers. But Fleming says the EV market as a whole is growing. "Competition could be a good thing, if it brings awareness," he says—not just for EVs, but also for the growing range of charging options.
More potential problems are brewing. Tesla is facing a series of lawsuits around its Autopilot semi-autonomous system, and worker safety concerns at the Fremont, California factory.
Tesla’s sales figures for the fourth quarter of 2018 will undoubtedly be good. The automaker might repeat its third quarter trick of making a profit. And never one to sit still, Musk already has announced plans to keep the company pushing ahead. He's working to build a factory in China and plans to unveil a small SUV called the Model Y and an unnamed pickup in 2019. Meanwhile, work continues on Tesla's semi-truck and revamped Roadster sports car.
Conventional wisdom would have Musk aiming to have a quieter 2019 than he did for 2018. But if the goal is making all those vehicles as common on Hollywood Boulevard as the Model 3 is now, well, maybe not. And Musk has never been one for convention anyway.
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