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It’s finally here! But then again, don’t get too excited.

These are the mixed messages coming from Tesla as the first models of the long-promised Model 3 sedan roll off the production line. The Model 3, with its base price of $35,000, represents an accessible version of the innovative company’s famous (and thus far, very expensive) electric cars. After multiple delays and missed deadlines, the sedans are finally entering into actual production, such that customers who put their names on waiting lists can expect delivery before the end of next year.

But even as excitement mounts about the fulfillment of this promise, Tesla’s founder Elon Musk is cautioning that the months ahead will be marked by challenges related to its production capacities. Currently, Tesla has an estimated 500,000 reservations for Model 3 sedans. Musk anticipates that the company can produce 10,000 cars per week—if everything goes right in the supply chain. But with the recognition that everything going right is rare, Musk also has suggested that the first six months of production will be “manufacturing hell” and warned people not to get their hopes up too high.

This balance between encouraging excitement to sell more cars and dampening expectations to avoid a service failure remains a difficult one, though Tesla has walked the tightrope for years. Early predictions suggested the Model 3 would be ready years ago, so consumers have grown a little accustomed to being disappointed in their expectations of the company.

Furthermore, while Tesla seeks to expand its reach more widely by introducing this more affordable version of its electric car, it also needs to avoid eliminating the market for its more expensive models, such as the existing Model S or the Model X sport utility vehicle. This specific balance is complicated by the broader goals that Musk has established for his company. That is, Tesla seeks to make electric cars the norm in the vehicle market and eventually drive out gasoline-power automobiles. Doing so requires it to attract a vast number of consumers, not just those who can afford the luxury versions of its products.

At the same time, Tesla cannot ignore the impacts of competitors. Most major car makers have announced plans to introduce electric or improved hybrid models of their popular brands. Volvo has promised that all its new cars will be hybrids or electric vehicles by 2019. Chevrolet already sells the fully electric Bolt, though its range (at 238 miles) is not as great at Tesla’s (310 miles).

Discussion Question:

  1. What can Tesla do to ensure that its supply chain works efficiently and avoid production slow downs?
  2. Which environmental factors have the greatest influences on the potential success of the Model 3?

Source: Tim Higgins, “Tesla Model 3 Arrives as Elon Musk Warns of ‘Manufacturing Hell’,” The Wall Street Journal, July 29, 2017