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Todd Hallenbeck17 Jan 2015
NEWS

Tesla swimming against the mainstream

Talking Model X and Model 3, Elon Musk shares his vision to 2020

Controversy surrounds Elon Musk. His battles with the BBC, the New York Times and the media in general seem to drive his boundless ambition. He couldn't dream larger or shoot higher than to put man on Mars within his lifetime. Down to earth, Musk as CEO of Telsa Motors is dragging the automotive industry into the realities of the electric vehicle age.

Speaking to a standing room at the Automotive News World Congress in Detroit, he laid down his ideas about Tesla Motors, the pending launch of the Model X by mid-year, on-going development of the affordable Model 3 and the Tesla Gigafactory under construction in northern Nevada.

The next five years will see tremendous growth and production capabilities, claims Musk.

"We'll have Model 3 in full production by 2020, and with an annual sales target of 500,000 vehicles, we'll start showing a profit."

From what Tesla Motors has said about the Model 3, we know it is mid-sized, about 20 percent smaller and 20 percent lighter than Model S and will be half the price of Model S.

"The lower cost of Model 3 is dependent on battery supply from the Gigafactory," said Musk. "I am absolutely certain we can achieve a 30 percent cost reduction in batteries by 2020." Additional cost reductions will be made where Tesla can.

Tesla Motors finally launched the Model S in Australia this year, about two years behind schedule. What's more, Tesla's full-sized SUV, the Model X, is now more than two years late.

"I do have an issue with punctuality," he admits and smiles. And without missing the opportunity, he plugs the SUV's handling. "It has the centre of gravity of a sports car. Its low centre of mass is because the battery pack is so low."

He confirms the distinct design and function of the doors on Model X.

"We have to be sure to do a lot of validation testing." The unique design seems to have created a few unique challenges at the hinge points and ensuring correct closure of the high lifting doors.

Customers who have already ordered a Model X and paid a substantial deposit have shown incredible patience. It also shows the confidence customers have in the brand.

"We've already sold all the Model X we can make this year. If you want to order a Model X, you'll unfortunately have to wait until 2016," he said and does not give even a vague delivery date.

Every car Tesla Motors builds is pre-sold. A short-term problem, admits Musk, is increasing production. In 2014 he claims weekly production volume doubled year over year, and he expects to again double weekly year on year production in 2015. "We need to get production rate to where we're demand-limited and not production-limited," he said.

Model S orders are filled in one to four months. It is a good problem to have, but other issues are a big as Texas. Musk points out the need to bring the Gigafactory in Reno, Nevada on line to supply the anticipated demand for battery cells.

"Until the Gigafactory is up and running, we don't have enough battery cells to supply another manufacturer," he said. With an investment of $5 billion toward construction, of which Tesla Motors provided $2 billion and Panasonic invested $2 billion, Musk estimates annual output of lithium-ion battery cells will be between $5 billion and $10 billion.  

Without the Gigafactory, Tesla Motors will not reach Musk's annual production goal of 500,000 vehicles by 2020.

Texas, Michigan, New Jersey and several other states are providing resistance by passing state legislation barring Tesla from direct sales to customers. Musk could fight the state laws through the Federal Court but admits he's not pursuing court action.

Some states – Massachusetts and New York – recently revised state laws to allow direct sales. New York placed limitations stating Tesla could establish a maximum of five factory stores. Beyond that and Tesla is required to sell through a franchised dealer network.  Musk is happy with the compromise.

Texas remains the burr.

Meanwhile: "The current economics do work for us," he admits, disclosing Tesla Motors margins are at mid-to-high 20 per cent with deliveries in 2014 of approximately 33,000 vehicles. "We are spending a lot of money on development of our supercharger [rapid battery recharge] system, on development of Model X and Model 3."

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Written byTodd Hallenbeck
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