Over the last couple of weeks, there have been a number of additional developments related to electric automaker Tesla Motors. This Supply Chain Matters commentary provides our readers our added perspectives from a supply and demand network perspective.
Base Model 3 Vehicle Availability
In late February, in a hastily organized event, Tesla announced that the manufacturer would now be finally able to provide a base Model 3 sedan at the once targeted $35,000 price point. That price point was the strategic milestone for the company to be able to be recognized as a more mainstream auto manufacturer, beyond luxury buyers. Instead the event headline was noted as: “lowering of the price of the Model 3.” We suppose that statement resonates when Model 3 perspective customers would only to able to take delivery a vehicle priced in the $40 thousand range. 
We view this milestone as a non-eventful, not worthy of praise, since the milestone should have been completed way before. It is a matter of context and expectations established with prospective customers. Rather than a marketing event highlighting incredible excitement, it should have been positioned as a news conference outlining a renewed emphasis to an unfilled customer promise. I
n 2017, upwards of 400,000 paid deposit reservations were believed to have been made so that prospective Tesla customers can be assured of a Model 3 delivery slot. That included expectations of the $35,000 price point. The original base milestone came with a parameter in the ability to sustain high volume manufacturing at target process control and margin parameters. That goal still has not been achieved on a consistent basis.
Delivery of the base model is now indicated to be two to four weeks from order date. As The Wall Street Journal pointed out in a recent Heard on the Street opinion column, such a delivery window is likely a signal that the backlog of base model demand within those prior customer deposits may have since run dry. By our lens, consumers either bucked-up and settled for a higher-priced version or decided to cancel. Tesla further announced price cuts associated with the higher-priced Model S and Model X vehicles, which would likely not sit well with current owners who paid more for their vehicles.
Further Corporate Restructuring
The company has announced that in order to remain financially sustainable, it is shuttering current showrooms and will henceforth only take vehicle orders online. This latest announcement comes
Some unspecified number of strategic showrooms with supposedly remain by in all cases, prospective customers will be forced to order a vehicle online. The automaker had upwards of 378 retail showrooms and customer service centers at the end of 2018. Short of virtual reality software, the decision defeats the ability for a larger population of prospective customers to be able to take test drives and “kick the tires.” CEO Elon Musk views the all online sales model as a competitive advantage.
The move is obviously one undertaken to cut additional costs and more headcount. A rather large cash bond re-payment was due and completed at the beginning on March.
A question in our mind is whether the new cuts impact customer service centers, since customer services remain an ongoing concern. The widely referenced April 2019 Auto Buying Issue of Consumer Reports magazine rates all three exiting Tesla models, including the Model 3 as not recommended, despite some very high marks for vehicle performance. The ding for all three is reported vehicle reliability by owners. The magazine’s Frequency of Repair tables for existing vehicles have heat maps pointing to issues with vehicle body parts, noise and power equipment.
CEO Musk has indicated to reporters that his company will be increasing the number of people servicing cars. We trust that it is indeed The case since responsive customer service and repair will continue to be an ongoing concern for current and prospective owners. That for us spans the notions of Tesla’s direct dispatch repair response or constant online software fixes. Overall customer satisfaction is very big deal when it comes to brand reputation.
Concerning Management and Employees Turnover
As previous blog commentaries have emphasized, the ongoing large numbers of both management turnover and employee exits takes a noticeable toll on ant company, let alone one that stakes its reputation on innovation. Last year. A reported 40 executives departed Tesla and exits continue. The notions of Tesla being the next Apple become periled with so many setbacks and consequent exits of key people. One more, the ability to introduce new models such as a rumored pick-up truck or ramp-up previously announced new entries such as the Tesla Truck take on considerable doubts when cash and operating income become significantly constrained.
All of these cumulative developments and announcements sadly do not depict a position of market strength and nimbleness.
As noted in our October blog commentary, business media such as global business network outlet CNBC point to Elon Musk’s extreme micromanagement as having wasted time and money for the automaker. Musk since became the target of an SEC directive when he falsely “tweeted” that the company had a buyer and would become private. The latest headlined incident of a “tweet” indicating that the automaker would achieve its 500,000-production milestone later this year, without prior review from the company’s lawyers as stipulated by the SEC ruling has risen new concerns as to whether his CEO role is not in jeopardy.
This a manufacturer that needs a fresh outlook and renewed focus on operational consistency and capability.
Our Supply Chain Matters wish is to be able to one day publish a rather positive commentary about an innovate company that collectively raised itself to new heights. Sadly, we do not see that coming for some time.
Bob Ferrari
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