Lets Walk with With The Tesla Model 3

                          


    While more than 500,000 people have put down a deposit for the privilege of owning Tesla's new Model 3, according to the company, 30 employees were the lucky few to receive their vehicles first.

Tesla CEO Elon Musk took the stage at a companywide event in Fremont, Calif., on Friday night to hand over the vehicles. Approximately a half-million people have put down $1,000 to eventually own an affordable long-range all-electric car.

The launch of Tesla’s mass-market Model 3 last Friday is a major milestone, perhaps an “iPhone moment’’, in the development of the motor vehicle industry.

      While there remain significant reservations about whether or not Tesla can meet a production schedule that Elon Musk has described as “production hell’’ — Tesla’s history has been plagued by production problems — the Model 3 has captured the imagination of car buyers and generated enormous excitement about the future of electric cars.

More than 500,000 people paid a $US1000 deposit to reserve their spots in a delivery queue that for many of them will stretch into 2019. That’s more than $US500 million of deposits and potentially more than $US17.5 billion of revenue for Tesla just at the base model price of $US35,000.

    Musk is planning a massive ramp up in production volumes, from a rate of 20,000 units a month in December to more than 40,000 a month in 2018. If he succeeds, he changes the auto industry. In some respects he already has.

Volvo recently announced that it would phase out vehicles powered only by internal combustion engines by 2019, shifting its production to electric or hybrid-powered vehicles. All the major manufacturers are investing heavily in battery-powered and hybrid models, partly because of the demand the Tesla experience demonstrates but also because European governments are beginning to mandate a transition away from petrol and diesel-fuelled vehicles.

Last week the British Government announced it would ban new petrol and diesel-fuelled vehicles by 2040, following hard on the heels of a similar announcement by France. Other European governments, like Norway (2025) have more ambitious aspirations. Many of the major cities in Europe are flagging bans on diesel-powered vehicles within a decade.

While many countries have subsidised the development of electric vehicle with registration and luxury car tax exemptions as well as direct rebates, the Model 3 will rapidly reach the point where it has to compete largely on its own merits, with the $US7500 rebate for electric vehicles phasing out once the company has sold its 200,000th vehicle.

As batteries become more efficient and the costs of producing them falls, electric vehicles will become increasingly competitive with conventionally-powered cars. A Model 3 has a battery life of 220 miles (about 350km) but a bigger battery version, which sells for $US44,000, has a range of 310 miles (about 500km).

The Tesla Model 3 sedan could bring hundreds of thousands of customers into Tesla’s fold, taking it from a niche luxury brand to the mainstream.

If the excitement around the Model 3, and the backdrop of government-decreed phasing out of petrol and diesel vehicles, are sustained it obviously isn’t great news for the conventional auto industry even though it is scrambling to position itself for an electric or at least hybrid future.

It’s also not great news for the oil industry, which has tended to be sceptical about the rate at which electric vehicles will displace those powered by fossil fuels. OPEC has said in the past that in 2040 — the year by which the UK and France say production and sales of new petrol and diesel-fuelled vehicles will have ceased — 94 per cent of the world’s vehicles will still be powered by fossil fuels.

Last week oil and gas giant Royal Dutch Shell, however, said it was preparing itself for a future where oil has peaked and where prices remain lower forever.

Saudi Arabia is pressing ahead with the prospective listing of its giant Aramco oil production and refining group, with plans to list five power cent of the company (and raise about $US100 billion through the world’s largest initial public offering in the process) still progressing. The IPO would be the start of a longer term sell-down of the level of Saudi ownership of Aramco.

The recent elevation of the architect of the Aramco strategy, Mohammed bin Salman, to the role of Saudi Crown Prince, underscores the Saudis commitment to the 2030 vision he developed to reduce and ultimately end the country’s dependence on oil by using the proceeds from cashing out its Aramco interests to diversify its economy.

That could be seen as a sensible risk-mitigation strategy against the long-term threat to oil demand and pricing posed by the shift away from fossil fuels that the increased focus among governments and consumers on electric vehicles exemplifies.

The Tesla Model 3.

Even without that long term threat, the post-2014 havoc wrought in the oil market by OPEC’s ill-fated decision to engage in a market share war with the US shale sector — and the damage done to the budgets of the major oil producers, including the Saudis — has generated an industry-wide conviction that oil prices are likely to be permanently lower than they might otherwise have been.

That’s because the oil price crash has demonstrated that the US industry is far more resilient than anticipated, has responded to the lower prices by significantly lowering industry break-even points and improving its productivity and shown that it can quite quickly switch off, or on, production volumes. US shale oil represents a ceiling on future oil prices.

In the near term, thanks to the production cuts by OPEC and other major producers and the dramatic reductions in investment in new production by oil companies, the size of the oil glut finally appears to be reducing and the oil price stabilising around, or just above, $US50 a barrel.

In the longer term, none of the trends is oil’s friend. The excitement around the Model 3, launched by a company that has sold less than 200,000 cars in its entire near-decade-long history, if Musk and his engineers can deliver, could be one of those moment that will, with hindsight, be seen to have accelerated the rate at which the trends moved against it.

"The whole point of Tesla is to make an affordable electric vehicle," Musk told reporters earlier in the day. While Tesla gets much of the attention in the electric vehicle world, this week would be considered momentous even without Tesla.

Let's consider the week:

• The Los Angeles Metropolitan Transportation authority, the nation's second-largest transit system with the nation's largest bus fleet made an investment of $138 million in electric buses. It's the first step in the city's plan to make the bus fleet all-electric by 2030.


• California Gov. Jerry Brown signed legislation extending the "cap-and-trade" program aimed at reducing use of fossil fuels. The state's "cap and trade" was first signed into law by Gov. Arnold Schwarzenegger. It has been a powerful tool for California's already-powerful air quality agency, the California Air Resources Board. Schwarzenegger joined Brown at the signing ceremony.


• Great Britain followed France in announcing that it would ban the sale of new cars fueled by gasoline or diesel fuel by 2040. It's part of a plan to phase out petroleum-fueled cars and light trucks altogether by 2050.


• Toyota Motor Corp is working on an electric car powered by a new type of battery, according to reports from Japanese paper Chunichi Shimbun. The battery is supposed to significantly increase driving range and cut charging times. The new battery technology is supposed to be in cars by 2022.


• Royal Dutch Shell CEO Ben Van Beurden said the company was focusing on the idea of oil prices that were "lower forever." The company says it's shifting its focus from oil to natural gas and plans on taking a bigger role in renewable energy so as not to miss out on a potential electric vehicle boom. Van Beurden said he is switching to an electric vehicle himself.

That's the context in which Musk's long-awaited affordable car enters the market. Musk heaped praise on the Model 3 calling it "safer than a Volvo." Musk has said also in unequivocal terms that the company needs the Model 3 to succeed: "We finally have a great affordable electric cars, that's absolutely what's needed for us."

During a test-drive, the fully loaded version of a Model 3 had comparable handling and amenities of its more expensive siblings the Model X and Model S but, according to Musk, has "far fewer bells and whistles." It's likely a car that will satisfy Musk/Tesla enthusiasts. However, if you want those bells and whistles such as autonomy and extended range, the prices jumps much higher than the $35,000 tease rate up to nearly $60,000. Even with federal and the most generous state rebates, that is out of the range for the average driver.

The problem for Tesla, unlike other automakers, is not demand, but supply. "We've done everything we could to unsell the car," says Musk.



Tesla would have to dramatically increase the scale of its production to fulfill the half-million orders. In 2016, the company produced fewer than 100,000 of its two best-selling cars. The company predicts it will be able to produce 250,000 of the new Model 3, eventually scaling up to a half-million vehicles annually.

As Europe turns toward electric cars, California is doubling down and global leaders are preparing for the rise of such vehicles. Sales of electric vehicles have increased significantly in the past 18 months, but they remain a small fraction of overall sales. Analysts say gas-powered SUV and truck sales dominate the U.S. market at more than 60 percent.

A last bit of context: Just one day before Musk took the stage, Ford's Truck division turned 100 years old. Its F-150 remains the best-selling vehicle in the U.S. for 40 years in a row. So while the nation's flirtation with electric vehicles is piqued, its love affair with trucks endures.

Will the production cars maintain this same sense of good carness? It’s hard to say if Tesla can deliver on its ambitious promises, but it certainly surprise delivered on making a good impression on me.



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