Tesla Model 3 Production Funded as Investors Beg Elon Musk to Take Their Money
Obviously, investors have a lot of faith in Mr. Musk.by Robert Moore, on
The car business is an expensive one, and moving things in the right condition can be quite costly. As such, Tesla was in a bit of a bind when it came to funding Model 3 production – something that could have thrown a monkey wrench into Elon’s whole plan to ramp up production to 500,000 units by the end of 2018. But, when it comes to money, people quite literally trip over their own feet in a rush to fund the pockets of one of the world’s elite and most interesting businessmen. So intensely, as a matter of fact, that it took him just four hours last week to raise nearly $600,000 of the $1.5 billion he was seeking. It’s only been a week since WonderBoy sold more than a half-million worth of Junk bonds to investors, and now we’re seeing word that Tesla’s fearless leader has managed to hit his goal, and even surpass it, securing a total of $1.8 billion in “eight-year unsecured bonds at a rate of 5.30 percent.”
So, at this point, everything looks to be moving full steam ahead for Tesla, thanks to its huge influx of cash. One has to commend Musk for being able to raise so much so quickly. But, it’s not without its risk. If things happen to go south, investors could take a huge blow. That’s the thing about buying up debt – it offers high yields in the long run, but it’s also possible to lose your ass too if things don’t work out as they should. Of course, this also means one thing – Tesla’s Model 3 production may not be plagued by delays and setbacks. But, it’s still possible. Keep reading to find out why.
The Gigafactory Needs to Deliver
In my last article that discussed the official Model 3 battery specs, how much each battery costs, the scheme behind the long-range battery, and some profitability projections, I touched base on the Gigafactory being the one thing that could set Tesla back drastically. See, In order to make anything really, I speculate that Musk has to sell long-range models since that battery should come at nearly a $6,000 profit with the current price increase of $9,000 between the standard- and long-range model. And the standard model won’t even start being delivered until sometime in fall of 2017, so Tesla is already banking on bringing in some extra cheddar from the long-range models. But this can also be a big problem. See, as Tesla plans to ramp up Model 3 production, it’s going to rely on the Gigafactory to supply each and every battery – that’s right, none of those cheap Chinese batteries here – and even Musk has admitted that he’s worried a lack of battery cells could put a damper on production, ultimately serving as a massive bottle neck in the production line.
Even Musk has admitted that he’s worried a lack of battery cells could put a damper on production
If there does turn out to be a lack of cells in the near future, Tesla could shift production to standard models only, as the battery used in that model is roughly 20 kWh smaller than the long-range battery and ultimately uses fewer cells. This could buy Tesla some time before production slows to a halt and delays begin to mount. But, if the Gigafactory can manage to ramp up its battery production as well, then things could go nice and smooth with the Model 3 and, subsequently, the Model Y when it finally goes into production – something Musk just recently admitted would happen much sooner than before now that he has decided to use the Model 3s platform instead of building an all new platform for the baby SUV.
On top of this, the price of battery production is expected to drop considerably over the next few years, with musk expecting the cost per kWh to fall below $100 by the end of the decade, ultimately dropping the cost of the batteries used in the Model 3 to as low as $5,500 for the standard-range battery and $7,500 for the long-range battery. But the factory still has to keep up with demand, so we’ll see what really happens.
Obviously, Elon Musk has shifted his strategy around a bit, and with the way he’s blowing through cash with Tesla, it’s a good thing. With the initial plan to develop an all-new platform for the Model Y, this $1.8 billion that he’s secured by selling off debt should be enough to keep things rolling until battery prices drop, the Model 3 is in full production, and the car actually starts to become profitable.
The Model 3 has been billed as this affordable EV for the masses, but the problem is that unless you want something insanely basic, you’ll pony up at least $45,000 so you can have AutoPilot and some other options
But, there’s another problem lurking in these murky waters, and that’s the Nissan Leaf. See, word has finally be released on the second-gen Leaf’s pricing schedule, and Musk should be worried. The Model 3 has been billed as this affordable EV for the masses, but the problem is that unless you want something insanely basic, you’ll pony up at least $45,000 so you can have AutoPilot and some other options. That knocks it out of the affordable category and moves the Leaf into striking range now that it will have an entry price of just $29,990 while the range-topping model will come in at $36,200. Of course, word also has it that the car will only use a 40 kWh battery pack which will likely account for just 140 to 165 miles of range – a far cry from that of the Model 3 and the Chevy Bolt EV. So, the decision will come down to paying less for less mileage but finding yourself will a more modern interior that isn’t stripped bare like that of the Model 3.
It will be interesting to see how things go for Tesla as the rest of the world’s automakers roll out their priced EV offerings, but what do you think? Will the money that Musk has raised be enough to sustain Model 3 operations? Will the Model 3 be able to hold its own against the cheaper second-gen leaf and the current Bolt EV? Let us know in the comments section below.
Read our full review on the Tesla Model 3.
Read our speculative review on the Tesla Model Y.
Read our speculative review on the Nissan Leaf.
Read our full review on the Chevrolet Bolt EV.