Why Tesla's long waiting list for Model 3 needed a caveat

SAN FRANCISCO -- During an April 21 speech in Norway, Tesla Motors CEO Elon Musk declared that the number of hand-raisers for the $35,000-and-up Model 3 had increased to almost 400,000 people, up from 325,000 reservations on April 7.

For a little while, we at Automotive News had reservations about Tesla’s backlog of reservations, because Tesla seemed to have lifted its two-per-person limit on refundable deposits.

In an article Friday on investing website Seeking Alpha, the blogger Anton Wahlman claimed to have placed 20 refundable deposits on the Model 3 without incident. (We thank him for his willingness to go wild with a credit card for journalism’s sake.) 

It meant opportunists could have placed $1,000 deposits in bulk, perhaps with hopes of reselling a place in line for a profit. Musk posted on Twitter last month that only 5 percent of reservation-holders had hit the two-per-person limit, which he said suggested low levels of speculation. Then that limit disappeared, or so it seemed.

Wahlman, a Tesla skeptic, suggested other possibilities.

He speculated that fans could be inflating Tesla’s backlog of reservations to make the company look better, or that investors could be trying to bump up the stock price, or that bankers could be trying to help Tesla raise money at a higher valuation. Or maybe, Wahlman went so far as to suggest, a rival car company could be trying to trick Tesla into building too many cars.

Conspiracy theories

These sounded like tinfoil-hat conspiracy theories. We saw every reason to believe there was a groundswell of demand for the Model 3. Just look at pictures of the lines that formed at Tesla showrooms in late March, when Tesla unveiled the car’s design at an invitation-only event near Los Angeles.

A Tesla spokeswoman, in an e-mail Friday, said the "gross majority of reservers made one reservation." She also referred to the 277 comments attached to the blog, many of which critique Wahlman’s hypotheses.

In a series of Twitter posts later on Friday, Musk said a scan of orders showed only 0.2 percent of deposits came from addresses in excess of the two-per-person limit, and any excess orders would be “purged shortly.”

Though this would seem to resolve any doubts about speculative or bogus orders, industry-watchers must still be careful with the 400,000 figure.

After all, these are refundable deposits. If reservation-holders change their minds for any reason, they can cancel their reservations and get their money back. It does not matter whether they are speculators or honest buyers. And if thousands of people start demanding their money back, that would be bad news for Tesla.

Tesla executives seem well aware that 400,000 reservations doesn’t automatically translate into 400,000 sales. In mid-April, when Tesla vice president of business development Diarmuid O’Connell gave a speech in Amsterdam, an audience member asked him about the backlog of reservations, calling it a “huge success,” as the blog Electrek reported.

“The real success,” O’Connell replied, “will be delivering a great product at the volumes possible and necessary.”

He is absolutely right. Tesla’s backlog of reservations is a strong indicator of the demand for an attractive, affordable electric car with decent range. Until these deliveries happen, the backlog should be taken with 400,000 grains of salt.