Tesla and its CEO, Elon Musk, have been all over the headlines of late, and for good reason. Since unveiling the initial prototype of its first mass-market vehicle, the Model 3, Tesla has racked up more than 325,000 pre-orders from would-be electric car owners.
Musk predicts the Model 3 will surpass half a million preorders in advance of the prototype's second reveal. If these reservations convert to sales, Tesla expects to rake in approximately $14 billion over the next few years.
So it's clear to see how Tesla will benefit from its "master plan" to limit carbon emissions by offering a more affordable, mass-market electric car capable of driving over 215 miles before needing to be charged. It's also clear that this plan has inspired hundreds of thousands of people to fork over a $1,000 (refundable) deposit in the hopes of being part of this green energy revolution.
More power to them. But given how much money is on the line, it would behoove all of us to take a step back and assess whether Tesla has the chops to deliver on its promises. While only time will tell, a closer look at this unprecedented situation reveals a few skeletons in Tesla's closet.
Here are five reasons why the rush to ship the Model 3 may ultimately lead to more harm than good:
1. Buyers May Be Deceived by the Promise of a Tax Credit
Many people have happily lined up to invest in the Model 3 with the expectation of receiving a $7,500 federal tax credit that will keep the basic model under $30,000. But there's a catch: The tax credit only applies to the first 200,000 electric vehicles sold in the U.S. by a given manufacturer.
Once that limit is reached, the credit drops to $3,750 for the next six months, $1,875 for six months after that, and then disappears entirely. Given that Tesla has already produced around 100,000 vehicles, it's already at the halfway mark. This means that many buyers are going to be sorely disappointed to learn that they may not get a tax credit at all.
2. Tesla's Quality Assurance Leaves a Lot to Be Desired
In spite of its popularity, Tesla has a poor track record when it comes to designing high-quality cars, and the company has repeatedly been criticized for performance issues. The problems with the $70,000 Model S got so bad that Consumer Reports stated that it demonstrated "a worse-than-average overall problem rate," and many of these issues actually got worse with subsequent models.
So far, the company has made up for these problems (in part) by offering stellar customer service, including towing cars up to 500 miles to the nearest North American service center. But if the company succeeds in delivering hundreds of thousands of Model 3s, it's unlikely it'll be able to extend these services to such a high volume of customers.
This is compounded by the fact that the company's factories have never before produced vehicles on a mass scale--meaning it's even more likely that problems may arise.
3. Tesla Has a Poor Track Record When It Comes to Meeting Deadlines
While doe-eyed buyers line up to hand over their deposit, they may not actually see their new cars for quite some time. Musk has predicted the first Model 3s will be delivered in December 2017 , but Tesla has often failed to meet its order deadlines. (Most notoriously, production of the Model X was delayed by nearly two years.)
If the company has struggled to maintain punctual production when operating much like a boutique factory (to date, Tesla's factories have only produced 100,000 vehicles), then it seems highly unlikely that it'll be able to follow through on its promises for 2017 delivery. In fact, some sources predict many buyers may not see their Model 3s until as late as 2020.
4. Tesla May Be Short on Funds
As the LA Times reports, Tesla's finances may be on the rocks. The company's most recent quarterly report heralded in eleven consecutive quarter losses, and these losses appear to be widening. Meanwhile, Tesla's annual report showed that the company had less than $1.2 billion in cash at the same time that it projected $1.5 billion in capital expenditures.
This means a lot is riding on the success of the Model 3--perhaps even the company's future. Worst case? There's a chance the company could go under before it finishes delivering its Model 3s.
5. Buyers Don't Know Enough About the Car to Guarantee Their Loyalty
To Tesla's credit, the company has pulled off a remarkable feat: It's convinced hundreds of thousands of people to put money down on a product that doesn't even exist yet. But this accomplishment might also be the company's Achilles heel.
So far, everything the company has promised is based on aspiration, not reality . That's akin to selling someone a security system without demonstrating that it actually has the features necessary to protect their home. In fact, Musk has already admitted that the design of the Model 3 may change throughout the course of production.
And the company has a track record of under delivering on its promises. All of this means the final version of the Model 3 may not at all resemble the vision that enticed so many buyers. Given Tesla's rocky financial situation, it literally can't afford to have a significant number of pre-buyers turn into defectors.
Tesla should be commended for its efforts to minimize greenhouse gas emissions and popularize electric vehicles. But given the number of obstacles involved in delivering on its promises, the company owes it to its customers and shareholders to be transparent about the road ahead. Otherwise, it risks the ire of 325,000 very disappointed fans.