With $35k Model 3 Finally Available, Tesla's Musk Warns of a Financial Rough Patch

Steph Willems
by Steph Willems

Is the long-awaited, stripped-down $35,000 Tesla Model 3 profitable? Company CEO Elon Musk won’t say, brushing off the question during a late Thursday conference call.

“Yeah, we’re not going to talk about that. Next question,” said Musk, who last fall warned that releasing the lower-priced car prematurely could sink the company. The nearly three-year wait period for the 220-mile electric sedan saw a constantly evolving end date, though the anticipated March deliveries jibes with Musk’s October prediction of four to six months.

What doesn’t jibe is Musk’s Thursday admittance that, after two profitable quarters, his company will likely sink back into the red.

Less than two months ago, Musk said he was optimistic for a profitable first quarter of 2019, as well as “all quarters going forward.”

That optimism has since dimmed, with Musk telling journalists last night, “Given that there was just a lot happening in Q1, and we’re taking a lot of one-time charges and there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable in Q1.” He added, “But we do think that profitability in Q2 is likely.”

Yesterday also brought news of the automaker’s move to online-only sales, with its retail stores turned into galleries, service centers, or perhaps closed. Again, the potential for job losses was something Musk preferred not to mention.

“That’s not today’s topic,” he said when asked about further layoffs. In a memo sent to employees last night, Musk warned of job cuts in Tesla’s sales and marketing divisions.

As for the public’s desire for a spartan, 220-mile Model 3 available only in black (any other paint shade will set you back at least $1,500), Musk said he wasn’t sure how many customers might spring for one. Spend two nanoseconds on “Tesla Twitter,” and you’ll be bombarded by claims that said demand is drying up faster than the Aral Sea, but accurate info on Model 3 orders is not an easy find.

JMP Securities analyst Joseph Osha told The Street “we believe that surge of late 2018 demand as buyers rushed to catch the full [federal EV tax] credit has created a hole in Q1 demand that Tesla is still working to figure out.”

Edmunds analyst Jessica Caldwell, speaking to the Los Angeles Times, said the entry-level car might have made a bigger splash had it arrived earlier. “If this model had come out when the Model 3 first launched and passion for Tesla was at its peak, shoppers might have given more latitude,” she said. “But the expectations have been set and it’s likely going to be a tough sell moving forward.”

Given that Musk won’t say if the standard model has a profit margin, it’s unlikely he’s worried about meager early sales.

While the online-only gambit will reportedly allow Tesla to drop prices by an average of 6 percent (as well as sell cars in more markets), online critics howled over the company’s plan to offer full refunds to buyers who return the car after a week, even with 1,000 miles on the odometer. The offer seemed ripe for both abuse and profit loss, they claimed.

[Image: Tesla]

Steph Willems
Steph Willems

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  • MKizzy MKizzy on Mar 01, 2019

    Keep it up Tesla. Not everyone want's to buy a car sight unseen regardless of the return policy. With more electric luxury models coming to market from full-line competitors, Tesla risks becoming the My Space of the electric automobile world: once all the rage then fading into nothing in the blink of an eye.

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    • Addm Addm on Mar 02, 2019

      @indi500fan Panasonic just make the cells. Tesla do the pack assembly. As mentioned below, Tesla do have good research credentials for the cell chemistry

  • HotPotato HotPotato on Mar 04, 2019

    While I don't care for his Trump-like personality characteristics, I've got to hand it to Musk for proving that an electric car can be quick, fun, sexy, luxurious, desirable, and now affordable too. I can't see anyone buying the long-range Nissan Leaf now unless they're hell-bent on getting a sedate hatchback with a soft ride.

  • James Hendricks The depreciation on the Turbo S is going to be epic!
  • VoGhost Key phrase: "The EV market has grown." Yup, EV sales are up yet again, contrary to what nearly every article on the topic has been claiming. It's almost as if the press gets 30% of ad revenues from oil companies and legacy ICE OEMs.
  • Leonard Ostrander Daniel J, you are making the assertion. It's up to you to produce the evidence.
  • VoGhost I remember all those years when the brilliant TTAC commenters told me over and over how easy it was for legacy automakers to switch to making EVs, and that Tesla was due to be crushed by them in just a few months.
  • D "smaller vehicles" - sorry, that's way too much common sense! Americans won't go along because clever marketing convinced us our egos need big@ss trucks, which give auto manufacturers the profit margin they want, and everybody feels vulnerable now unless they too have a huge vehicle. Lower speed limits could help, but no politician wants to push that losing policy. We'll just go on building more lanes and driving faster and faster behind our vehicle's tinted privacy glass. Visions of Slim Pickens riding a big black jacked up truck out of a B-52.
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