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Tesla Motors Inc (TSLA) Model 3 Can Benefit From Model X Mistakes

Tesla Motors inc (TSLA) Model 3

Tesla Motors Inc has finally shown off the Model X EV SUV. It looks like a great car, even though nobody has gotten a chance to review it just yet, and it seems that those in line to get one in the coming months, whether they number in the tens or the thousands will be very happy with their $130,000 purchase.

Tesla Motors Inc (NASDAQ:TSLA) Model X SUV on Assembly line

Just because the Model X is great doesn’t mean it’s perfect, however, and the car has certainly been a massive weight on Tesla Motors for the last year or so. There’s lots of lessons that the firm can learn about the upcoming Model 3 from the little crises that have unfolded at every step. Here’s a look at some of the obvious ones.

Model X has too many moving parts

One of the great things about an EV is that it’s simple. By right a car that sucks power from a battery and runs a motor should be much easier to run than one that needs constant explosions to keep going forward. With the Model X that’s not true, and it’s something of a failure on the part of Tesla Motors .

Elon Musk has already said that the Model X is likely too complex. At the event that launched the car he said “I think we got more carried away with the X.” “I’m not sure anyone should have made this car,” he added.

The reason why the Model X is so late appears to be down to how hard some of the features of the EV were to make. For a firm with Tesla Motors’ resources this creates a number of problems.

Hard to make means hard to fix. If something has a lot of moving parts and is very hard to put together, it’s likely to be very hard to fix. Those with shares in Tesla Motors live in constant fear of a product recall. Such a recall could burn huge amounts of cash in one fell swoop and destroy any chance Tesla Motors has at making a Model 3. Making a car with so many moving parts makes that sort of cash burn much more likely.

Hard to make means harder to make en masse. It seems that Tesla Motors only got six units of the Model X shipped before the end of the third quarter. For a car that should have shipped more than a year ago, that’s off-kilter. The Model X can’t be made in high amounts just yet because it’s not ready.

Hard to make means expensive. Tesla Motors spent a huge amount of money on research in order to get the Model X right. Though the gross margin on the EV may be high, the true story is told by the operating margin at Tesla Motors. Research is burning cash and, though it’s necessary, that isn’t a sustainable model.

Tesla Motors needs to learn to make a car that’s a whole lot simpler than the Model X. If the firm can make a solid EV with 200 miles of range and sell it for $35,000, it will attract a whole lot of people. By the time the next oil shock comes around the firm could be primed to boost sales somewhere close to the 500,000 Musk says’ he’ll reach in 2020.

If the Model 3 is set to be another amazing car, Tesla Motors may be digging a whole for itself.

Tesla Motors needs to control the press

It’s not that some of the rumors about the Model X were bogus, or that it was reported that Apple may have been slowing down progress on the car by hiring key Tesla Motors  staff.

The big problem in the way Tesla Motors has dealt with the press in the run up, and in the wake of, the model X launch is the lack of a cohesive fact base. All over the web, and in print, it has been reported that the Tesla Motors Model X will sell for $130,000 and up.

Elon Musk expects the car to cost less than $90,000 once production has been ramped up, but Tesla Motors has lost control of the press, despite Mr. Musk spending quite a lot of time with them before the event on Tuesday September 29.

Organize the Model 3 event properly

The Model X launch event was a little bit of a disaster. Though Elon Musk still made the headlines, and he’s improving, the launch date failed to get across a lot of the things that are really special about the Model X.

The Model 3 will need to reach a very wide audience in order to drag Tesla Motors  up to the 500,000 sales per year target. That goal could be helped quite a bit with a presentation that hits the key points and actually starts on time.

Elon Musk spent the hour after the Model X event was supposed to start speaking to the press. It would be nice if, when the Model 3 comes around, he could change the start date of the presentation, or find some other away around what was a major problem for those trying to watch.

Learn to keep quiet at Tesla Motors

The cat is out of the bag. Elon Musk has already said that the Model 3 will have its release date in 2017. With the Model X, announcing a release date far in advance didn’t exactly work out. The car arrived more than two years after its initial display.

We assume that Tesla Motors is getting better at making cars, and production numbers bear that out, but there’s still a lot of things that could stand in the way of the Model 3 release date.

It’s almost certain that Tesla Motors   won’t be able to sell 55,000 cars this year. The firm’s downward adjusted target, at 50,000 units, may also be hard to reach. The Model X, and the issues the firm has had in getting it on the road, seem to have set Tesla Motors back quite a bit.

That means that resources may be taken from the Model 3 design, at least for the time being, in order to ramp up the firm’s Model X efforts. There’s a hundred things that could push the Model 3 back, each one fueling negative headlines, and investor sentiment, on Tesla.

Tesla lives at the mercy of the market. The firm doesn’t have a profit to call its own, and it’s not likely to have one for quite some time. That likely means a return to the capital markets is ahead. Failing to hit the milestones put out there, for both the Model X and Model 3, could put the firm in danger and harm everything that Elon Musk has tried to build so far.

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