Tesla’s strategy for the launch of the Model 3 slowly emerges

Since Tesla was founded over a decade ago, the company’s long term goal has been to bring a low cost, long-range electric car to market for the masses at a price of around $35,000. Today, that car, now named Model 3, is still at the heart of everything that Tesla does — it’s why Tesla is building its massive battery factory, and it’s one of the reasons why Tesla CEO Elon Musk thinks Tesla could be worth as much as Apple in a decade.

But launching the Model 3, which is supposed to come out first in 2017 and have its first full year of sales in 2018, will no doubt be risky. It will be Tesla’s riskiest move to date, following the launch of its initial car, the Roadster. While the subsequent Model S was by all accounts a success, a low cost, long range vehicle with a brand new platform design is a new beast entirely, and one which will be affected by thousands of difficult decisions Tesla makes, not to mention a variety of external factors like what are competitors launching and the cost of oil that year.

Inside Tesla Motors Inc.'s Flagship Showroom

And it’s now clear that Tesla has decided to try to minimize some of the risks with the Model 3 car by taking lessons learned from some of the choices it’s made on its other cars in the past, and looking to apply them to the design, engineering and launch of the Model 3.

A couple years ago, Tesla’s Chief Designer Franz Von Holzhausen told me that the Model 3 could potentially have a much more provocative and expressive look than the pretty standard Model S sedan. But during Tesla’s earnings call last week, Musk indicated that Tesla might launch a more conservative and basic initial Model 3, but follow-on versions of the car that could be more avant garde.

Moderated by: Katie Fehrenbacher — Senior Writer, Gigaom Speaker: Franz von Holzhausen — Chief Designer, Tesla Motors

Moderated by:
Katie Fehrenbacher — Senior Writer, Gigaom
Speaker:
Franz von Holzhausen — Chief Designer, Tesla Motors

Why? Tesla’s Model X car — which is an SUV/minivan cross vehicle based on the Model S platform — has been much delayed and most of that delay has seemed to come from getting the unusual “falcon wing” door and the second row of seats operating properly. The Model X door is the world’s first double actuating gull wing door, and Musk said it’s been “extremely difficult,” noting “there’s a reason others haven’t done this before.”

Musk said:

[blockquote person=”” attribution=””]Going to Model 3, we don’t want to have something – at high volume — that for this feature we lose a year of production. It would make more sense to go with something that we know that people would love and make a beautiful car and then innovate in more avant garde directions on that platform with future iterations, where we can then put aside any schedule and volume concern.[/blockquote]

The Model X debut.

The Model X debut.

Elon Musk is known for having a massive appetite for risk. He runs a rocket ship company, chairs a solar panel installer firm, leads Tesla, and also has investments in all of his companies. But even he feels the need to move slightly more conservatively here. The battery factory itself has enough risk to make anyone a bit nervous.

Some analysts have expected the Model 3 car to deliver 40,000 in sales in its first year, with a potential ramp up to 150,000 in 2020, and 400,000 by 2028. That’s a lot cars to ship, particularly on an initial more conservative platform and more provocative cars there after. In comparison, Tesla has shipped around 60,000 Model S and Roadster cars in total between 2008 and today.

Tesla owners take a ride in the new Tesla "D" model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla 'D' model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Tesla owners take a ride in the new Tesla “D” model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla ‘D’ model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

At the end of the day, the original vision of the Model 3 as ‘the people’s’ electric car might have to be altered slightly. The expected price of the car — which for a long time was projected to be $30,000 or less — has creeped up to $35,000 and some analysts predict it will land somewhere between $35,000 and $40,000. But beyond that, analysts expect the average transaction price (with the added features) to be closer to $60,000, and in that way, it wouldn’t necessarily be a mass market car; more of a luxury mid-range car.

On the earnings call last week, an analyst asked Musk why if Tesla was taking so many cues from Apple on execution and product, it wouldn’t continue to focus on higher end luxury products like its new Model D? Apple wasn’t focused on launching a $30 iPhone, noted the analyst. To that Musk replied:

“The goal of Tesla has always been to accelerate the advent of sustainable transport, and make electric cars happen faster. We need to make a lot of electric cars [for that to happen] and make them more affordable.” And in that way, he’s not like Apple’s former CEO Steve Jobs at all.

It’s official: GM’s 200-mile, $30K electric Bolt car will be produced

Last month GM showed off an electric concept car called the Bolt, which was widely seen as a competitive shot at Tesla’s planned lower cost Model 3 car. Now on Thursday, ahead of the Chicago Auto Show, GM announced that the Bolt, indeed, will go into production.

[company]GM[/company] says the car will be built at the company’s Orion Assembly facility near Detroit, and GM will spend an initial $200 million to get the car into production, including $160 million for tooling and equipment, and $40 million for new dies.

The electric Bolt concept car from GM.

The electric Bolt car from GM.

GM says the Bolt will “leverage” the battery tech used in the Volt, but if the range is supposed to be 200 miles on all-electric then the Bolt will have to use more advanced battery technology than the Volt. Quartz reported previously that LG Chem will supply the 200-mile battery for the Bolt.

GM has long had the idea to build this lower cost, longer range electric car, and the company has been shooting for a launch in 2017, potentially as a 2018 model. But the release on Thursday didn’t detail any type of timeline for the production Bolt.

GM's 2016 Chevy Volt

GM’s 2016 Chevy Volt

While GM’s Volt has been one of the best-selling electric cars out there, its sales numbers for 2014 were slower than in previous years, and in 2014 GM sold 18,805 Volts (down from 23,094 in 2013). The lower Volt sales last year were partly due to everyone waiting for GM’s 2016 Volt, which also launched at the Detroit Auto Show last month. The 2016 Volt has a 50-mile battery range before it kicks into gas mode.

GM has had some fits and starts getting this Bolt concept car together. The company previously was working with startup Envia Systems on a 200-mile range battery, but that deal collapsed after the technology didn’t end up working as promised.

Switch to build huge data center near Tesla battery factory

The stretch of land that will house Tesla’s new massive battery factory just outside of Reno, Nevada, will become home to another very large customer: what’s being billed as the world’s largest data center to be built by Las Vegas-based data center provider Switch.

Nevada Governor Brian Sandoval announced Thursday during his annual State of the State address that Switch, which has huge SuperNAP data center facilities in Las Vegas, plans to build a 3 million square-foot, $1 billion data center (it’s largest project yet) at the Tahoe Reno Industrial Center. Switch plans to have the first 800,000 square-foot portion of the facility built by early 2016, and eBay will be the anchor tenant.

Switch's SuperNAP data center in Las Vegas

Switch’s SuperNAP data center in Las Vegas

Last year, after months of negotiations, Tesla announced that it had chosen the Tahoe Reno Industrial Center for the location of its battery factory, which will churn out enough lithium ion batteries for 500,000 electric cars by 2020. Tesla’s factory will cost $5 billion and will create 6,500 jobs, and Tesla received a $1.25 billion tax break over 20 years.

Switch is also expected to receive tax incentives for its Reno data center. In addition to the new site, Switch is also expanding its facilities in Vegas.

A recently raised spot of land in the Tahoe-Reno Industrial Center.

A recently raised spot of land in the Tahoe-Reno Industrial Center.

Switch’s SuperNAP Reno will connect to its Vegas facilities via fiber — dubbed the SuperLoop — which will be a 500 mile fiber network between the two regions. Data Center Knowledge said the fiber network will “place 50 million people within 14 milliseconds of data hosted at the SUPERNAPs.”

Switch won’t be the only data center operator in the Reno area. Apple is building out a sizable data center (recently expanded to nine buildings and 345 acres) at the Reno Technology Park about 20 miles east of Reno. One thing that attracted Apple, and likely Switch, to the Center is the region’s capacity to offer clean power for data center providers. Tesla plans to, down the road, fully support its factory with clean power.

The deal is good news for the city of Reno and the surrounding area, which has been trying to remake itself into a high tech manufacturing region and move beyond its image as a gambling backwater (see the Changing face of Reno: Why the world’s biggest little city is attracting Tesla and Apple). However data centers don’t provide the type of full time jobs that a factory does.

Is the solar panel & battery combo ready to change energy markets?

The big idea right now for solar and batteries is this: put solar panels on your roof, a battery in the backyard (or basement), and become utterly independent from the power grid, using free electricity from the sun. Batteries have long been looked to as a way to store energy solar energy during the day to be used at night, but they have long been too expensive to be used widely. But many companies are looking at 2015 as a very important year for the solar and battery partnership and I’ve heard the word “tipping point” being used repeatedly about this intersection recently.

Why all the excitement and why now? First off, traditional lithium-ion batteries — the kind being widely used in cell phones and laptops — are becoming cheaper than ever before. Electric car company Tesla and Japanese battery giant Panasonic have been working closely on lowering costs of their lithium-ion batteries significantly, and with Tesla’s “gigafactory” the companies expect to be able to reduce the lithium-ion battery cost by another third.

solar panel

Navigant Research estimates that Tesla pays about $200 per kWh for its Panasonic battery cells today, and that price could drop as low as $130 per kWh by 2020 when Tesla’s massive factory — which is expected to more than double the world’s lithium-ion battery production — is fully up and running in Nevada. Several years ago, lithium-ion batteries cost closer to $1,000 per kWh. Tesla plans to sell some of the batteries from its factory into the power grid market, and SolarCity (the installer company chaired by Tesla CEO Elon Musk) already uses Tesla batteries for a solar panel energy storage system.

Lithium ion batteries are becoming such a clear low cost platform for energy storage that other startups beyond Tesla are adopting this idea, too. At CES last week, a startup called Gogoro launched an electric scooter and battery swapping infrastructure based around modular lithium ion batteries designed also in conjunction with Panasonic. Owners of the Gogoro scooter will some day be able to swap out their two depleted batteries at a nearby battery swap station, and they will likely pay a subscription for access to the batteries.

Gogoro's electric scooter and battery station

Gogoro’s electric scooter and battery station

But it’s not just the economics of lithium ion batteries that are driving the pairing of solar and batteries. Other startups have been developing newer, low-cost battery chemistries that are optimized for the power grid, like Aquion Energy and Ambri. Aquion Energy last week announced that one of its largest battery installations to date (2 MWh) is going into a solar system on the Kona coast of Hawaii.

The surge in solar panel installations is one of the main drivers behind this grid battery trend. There’s a lot bigger market these days for solar: More than a third of all new electricity installed in the U.S. in the first three quarters of 2014 came from solar panels, both utility-scale solar and solar panels on residential rooftops. That’s second only to new natural gas plants.

Battery stacks and modules in Aquion Energy's factory. Image courtesy of Katie Fehrenbacher, Gigaom.

Battery stacks and modules in Aquion Energy’s factory. Image courtesy of Katie Fehrenbacher, Gigaom.

Solar companies, like SunPower, SolarCity, Sunrun and others, are doing deals with battery makers, looking to offer new services. Startup Stem, which uses distributed battery packs to work like virtual power plants, is working with Kyocera Solar.

Then there’s the grid battery market that’s being opened up by the state of California’s aggressive mandates for energy storage. California utilities are being asked to buy 1,325 megawatts of energy storage services by 2020, and utility Southern California Edison has already said it will buy 250 MW of energy storage systems. Part of SCE’s plans will be made up by a huge 100 MW battery plant from AES Energy Storage and a 85 MW contract from Stem.

Tesla's image of its clean powered factory. Courtesy of Tesla.

Tesla’s image of its clean powered factory. Courtesy of Tesla.

So clearly, utilities aren’t worried about energy storage in general, because they will some day be major users of this technology. But in the short term, some are worried about so-called grid defections. If your solar panels and battery offer you all the electricity options you need, why do you need the utility?

However, according to a recent report from Moody’s, batteries and clean power are just still too expensive to be too threatening right now. Moody’s said that even with battery prices at $200 per kWh, and solar panels at $3.50 per watt, these technologies are “an order of magnitude too expensive to substitute for grid power.” Battery prices would have to be closer to $10 per kWh to $30 per kWh range to be cost competitive widely for the power grid, said Moody’s.

Those costs might be difficult for (most) residential customers to justify, but it could be a different story for commercial building owners. GTM Research says the market for solar panels paired with batteries will surpass $1 billion in annual revenue by 2018 (up from just $42 million last year), with collectively 318 MW of solar and storage capacity installed in the U.S. by that time. One in ten new commercial solar customers will opt for an energy storage addition by 2018, predicts GTM Research.

Revolving door for Tesla’s head of China

Tesla’s President of China, Veronica Wu, has resigned after less than 9 months on the job, according to a report in Bloomberg. Wu joined the electric car company in March, after the previous President of China, Kingston Chang, left the company last December. While China is the largest car market in the world and could have huge potential for Tesla, the country is also notoriously difficult to enter. A Tesla exec tells Bloomberg the company remains confident in the Chinese market.

Five reasons why Tesla’s stock is down

Electric car company Tesla Motors has seen its stock drop pretty significantly over the last three months. From a high of more than $291 on September 4, to its current trading price of around $223 Friday, Tesla has lost more than 20 percent of its value over three months.

This is not necessarily cause for too much alarm. The stock has always been a bit volatile and many stock owners believe in Tesla’s long-term value over its short-term value. But to help explain why the stock has sputtered, here are five reasons it’s been down recently:

Tesla owners take a ride in the new Tesla "D" model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla 'D' model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Tesla owners take a ride in the new Tesla “D” model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla ‘D’ model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

1. Tesla’s stock has been overvalued. For the volumes that Tesla produces, and for the early stage of its life, Tesla’s stock has been significantly overvalued over the past two years. From its IPO at $17 per share in 2010, the stock has risen more than 1,400 percent to reach that high in September 2014.

Tesla CEO Elon Musk has acknowledged this repeatedly over the past year, most recently at a news conference in September right after he announced that Nevada would get the battery factory. Musk said at the time, “I think our stock price is kind of high right now … If you care about the long term, Tesla, I think the stock is a good price. If you look at the short term, it is less clear.”

A recently raised spot of land in the Tahoe-Reno Industrial Center. Katie Fehrenbacher, Gigaom.

A recently raised spot of land in the Tahoe-Reno Industrial Center

2. Battery factory is a sizable risk. While Tesla’s huge battery factory has been the subject of breathless media attention, there’s actually a lot of risk involved with setting up such a massive factory and meeting battery production and cost expectations on time and budget.

That’s partly because of the sheer size of the factory, but also because it will be a sort of industrial park under one roof, where Tesla will work with Panasonic and various other companies that will make the batteries’ anodes, cathodes, and separators. Tesla will produce the battery packs and be the landlord, but will be coordinating with the other companies in its space. Working closely with suppliers in this way could take time to get right.

However, the reality is that Tesla would not be able to make its third-generation car at the price it wants and in the way it wants if it didn’t build this factory. Tesla and Elon Musk are “leaning in” to the battery problem, so to speak, adding more risk, instead of looking to mitigate risk to solve the issue.

Tesla factor floor, image courtesy of Tesla.

Tesla factory floor.

3. Tesla growing pains: For all that Tesla has achieved, it has had some growing pains over the past few months as it tries to ramp up production of the Model S and move closer to launch of its next cars.

Tesla has delayed the launch of the Model X many times, most recently in its last earnings on November 5. It also revealed that it wasn’t able to ramp up production of the Model S as quickly as it had expected during the third quarter, so it was going to miss its annual production guidance for the year.

Growing pains are to be expected for a small car company trying to transition into a much bigger one. But I would expect these little speed bumps to sway the stock in the short term.

Tesla CEO Elon Musk launches the Tesla D.

Tesla CEO Elon Musk launches the Tesla D.

4. The D underwhelmed. While the Tesla D — the souped-up dual-motor, all-wheel-drive version of the Model S that can go zero to 60 in just over three seconds — is undoubtedly cool, Tesla’s stock slumped immediately after its launch in early October. I think stock watchers were used to more disruptive and buzzy technologies out of Tesla, like the Model X with its eye-popping new doors, or Tesla’s hyped-up super charger-network. To me, the D indicates that Tesla wants to monetize its current Model S platform even more, now that the Model X is delayed. Will the third-gen car be delayed as well?

One of several Volts on the floor at a conference 2012.

One of several Volts on the floor at a conference in 2012.

5. Growing competition. While there aren’t many companies that are effectively competing against Tesla’s Model S category right now, car companies continue to launch new models that could be more competitive in the future. GM is launching its next-generation Volt next year, and the original Volt is the bestselling electric car in the U.S. in total over time, with 70,531 units sold to date. Toyota and Honda plan to launch new fuel cell electric cars next year. BMW is trying to become more competitive after the launch of its i3. Nissan has done pretty well with its LEAF electric car, but it’s a shorter range, cheaper, urban car, compared to the Model S.