In a protracted and meandering shareholder meeting last week, Tesla’s Elon Musk and JB Straubel spent more than three hours taking investors through a history of the automaker.
There were tales of a failed demo of an early Roadster prototype to Google founders Sergey Brin and Larry Page, crucial partnerships with Daimler and Toyota that helped keep Tesla afloat and the hubris in bringing a vehicle like the Model X to market with features that weren’t ready for prime time.
But reading between the lines -- the many, many lines -- there was a sense that Musk was also using the meeting to pump the brakes on expectations for both Tesla and its much-heralded Model 3.
For all the ludicrousness of the S and X, it’s the “affordable” Model 3 that has always been the cornerstone of Tesla’s plans. “This is the car we’ve wanted to build since the company was founded,” Straubel, Tesla’s technology chief, said at the event.
Two-year window
Officially, Tesla says it will bring the Model 3 to market by the end of the 2017. This seems unlikely, especially since Tesla won’t freeze the car’s design for another six weeks. Analysts estimate the Model 3 won’t show up until well into 2018 or even 2019.
That leaves at least a two-year window where it will be imperative for Tesla to command patience from its investors while Musk and his team expand capacity tenfold to meet their stated goal of producing 500,000 vehicles in 2018.
To hit that target, Tesla is going to need heaps of cash. The company already plans to sell about $1.4 billion in stock to help pay for its ambitions, its biggest equity sale to date. More might be needed on top of that.
In the meantime -- and in the absence of additional core products -- Musk will have to walk that fine line between sustaining investor enthusiasm and tempering expectations of Tesla’s most important product.
This helps explain Musk’s more modest and conciliatory tone during the investor meeting. It was a plea to investors to stick around for what might be an uncomfortable ride through some drab scenery.
For example, Musk made clear that the Models S and X would continue to be Tesla’s innovation leaders and would be the first place new features or advances land, before they wind up in the Model 3.
“The reason the technology in the S and X will precede the 3 is not because we’re trying to intentionally withhold it from the 3, but rather because it’s fundamentally more expensive when you have new technology until you can do multiple design iterations and achieve economies of scale,” Musk told the crowd.
This may be news to an auto industry neophyte upset that the Model 3 he put a deposit on won’t come with free Supercharging.
But it’s as well-understood in the rest of the industry as steering wheels and brake lights. Can you imagine Dieter Zetsche feeling the need to explain to shareholders that the entry-level CLA sedan won’t come with the same V-12 engine as the S600, or the reclining rear seats with hot-stone massage?
Should have waited
Musk himself has learned the importance of moderating expectations. He conceded that some features on the Model X were far too ambitious for the initial launch and that he should have waited until a second or third iteration of the crossover to introduce elements like the falcon doors or the one-piece panoramic windshield.
The Model 3? Designed from a rote manufacturing perspective, Musk says. This is a key reason the interior borders on spartan. The fancy stuff will have to wait for later versions of the sedan or possibly the Model Y small crossover Tesla is rumored to be building off the Model 3’s platform.
That’s assuming Tesla survives long enough to do it -- an issue Musk also felt the need to address. Tesla, he said in his presentation, had survived near-death experiences before. Each time, the company adapted, he said.
There are signs that he, too, is evolving as an executive. While Musk’s goal of 500,000 units annually in 2018 bears all the bravado and hubris of a big-think disruptor, his tone during the investors meeting was one of a more cautious -- and seasoned -- automotive executive.
This included a nugget of acquired wisdom he shared with people thinking about creating a company of their own.
“Even if your company starts off based on things that are completely untrue that you don’t know about,” he said, “what really matters is recognizing the mistakes and adapting quickly and fixing the false premises on which the company was founded.”
