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Elon Musk denies early orders being canceled for Model 3 – but new demand may be slipping anyway

Elon Musk denies early orders being canceled for Model 3 â€" but new demand may be slipping anyway Stephen Lam The existing rese...

Elon Musk denies early orders being canceled for Model 3 â€" but new demand may be slipping anyway

The existing reservation list for new Tesla Model 3 electric vehicles is more than 400,000 people long.Stephen Lam The existing reservation list for new Tesla Model 3 electric vehicles is more than 400,000 people long.

Recently, Elon Musk lashed out at a new analysis claiming that nearly a quarter of the more than 400,000 advance reservations for Tesla's Model 3 battery-sedan have been canceled.

But a closer look at Musk's comment raises a different reason for concern: The prospect that new orders may not keep up with Tesla's long-awaited production ramp-up at it' s suburban San Francisco assembly plant.

When it opened the order bank up ahead of the Model 3 production launch in July 2017, Tesla saw a rapid burst of reservations, complete with $1,000 deposits. But with many potential buyers still uncertain about when they might be able to actually take delivery, investment bank Needham & Company on Thursday issued a report claiming 24 percent of those reservations have been canceled â€" which echoed a June study by data site SecondMeasure, which estimated a 20 percent cancellation rate.

“Dunno where this bs is coming from,” Musk said in a Thursday night tweet. If anything, he boasted, the automaker had received 5,000 new orders for the Model 3 the week before, as well as 2,000 orders for the older Models S and X.

A spokesman for Tesla told CNBC that, as of June 31, “The remaining net Model 3 reservations count at the end of Q2 still stood at roughly 420,000, even though we have now delivered 28,386 Model 3 vehicles to date.”

For those who are now translating reservations into actual orders, as well as new customers, the spokesman added, delivery will come in “approximately one to three months.” Meanwhile, three people who placed early reservations spoke told CNBC they have heard from Tesla in recent weeks, indicating they could take delivery even sooner than that.

But the numbers don’t necessarily add up. As the second quarter ended, Musk announced that the carmaker had hit its revised goal, producing 5,000 Model 3 sedans during the final week of June. Tesla has now set a goal of reaching 6,000 a we ek within the next month and, longer-term, is aiming for the original target of around 8,000 weekly. That was the figure Musk had announced previously, before things headed south at the Fremont, California assembly plant.

Even at that highest figure, it should take more than a full year for Tesla to meet existing reservations, assuming everyone does follow through in turning those into orders. And that doesn’t take into account brand new orders, like the 5,000 Musk claimed to have received last week.

In other words, if Tesla can get you a Model 3 in no more than three months, it suggests that either more reservation-holders have backed out than it claims â€" or that a high percentage have so far declined to transform those reservations into actual orders.

Only time will tell

Tesla opens Model 3 sales to all of North America

There have been questions raised about the veracity of Tesla’s numbers. Recently, former Tesla employee Martin Tripp made just such a claim in a whistleblower filing with the Securities and Exchange Commission â€" while also alleging Tesla has sent cars to customers with potentially dangerous battery defects.

The automaker, however, contended the one-time worker at its Reno Gigafactory battery plant has committed sabotage, and provided false data to the media.

Only time will tell how many of those original reservations actually translate into sales. So far, it is difficult to track down hard data, though there have been anecdotal reports by competing dealers in California. Some are selling the long-range Chevrolet Bolt EV, and have said they've seen customers cancel out on a Te sla.

However, the potentially bigger concern was flagged by Musk himself. If Tesla is only taking in about 5,000 new orders a week, that means it will already be slipping behind production in the months to come. As it steadily fulfills early reservations, it may have a demand shortfall on its hands.

There are a number of reasons why new orders aren’t keeping pace, according to industry observers. Despite Tesla’s promise of a quick delivery, Tesla simply can’t fulfill everyone’s order for as much as a year â€" and new customers would likely go to the back of the line.

Big expectations for orders

A long wait might not bother custome rs for high-line products like the Tesla Models S and X, according to analyst Dave Sullivan of AutoPacific, Inc. They typically already own several other cars they could fall back on. For mainstream buyers, the Model 3 is more likely to be their only set of wheels, and at some point the customer's patience could run out.

In an e-mailed response, the Tesla spokesman said the company isn’t worried about the relatively slow pace of new orders. “When we start to provide customers an opportunity to see and test drive the car at their local store, we expect that our orders will grow faster than our production rate,” the company said. And the addition of more Model 3 variants, also should boost demand, the spokesperson added.

But not everyone is so sanguine. Longer-term, there is the issue of federal tax credits. Depending upon the package a buyer opts for, a $7,500 credit amounts to as much as a 21 percent discount on a Model 3.

Just this week, Tesla confirmed it had sold its 200,000th electric vehicle in the U.S., the benchmark at which tax incentives begin a slow phase-out. Those who take delivery before the end of the year will continue to receive the full credit, but the incentives will be halved during the first six months of 2019, then halved again from July to the end of December. The tax credit will completely expire as of January 2020.

Unless they somehow can jump the line, those placing new orders would be the least likely to get any money from the feds.

That could create more headaches for Tesla going forward. Demand for new models typically peaks in the first 12 to 18 months, according to industry data. That said, the battery-car business is so new it’s not yet clear if that precedent applies here.

Still, further complicating matters is that electric vehicle buyers will get plenty of new alternatives over the next 24 months, with the launch of long-range models from Volkswagen, Volvo, Audi and others. General Motors has two more models coming by mid-2019, though it’s also set to soon cross the 200,000 sales threshold. Most other automakers will retain tax credits past 2020.

Tesla has bet big on the Model 3, and Musk has promised that the mainstream model will allow the company to deliver a profit and positive cash flow for the second half of 2019. With that in mind, Tesla needs to be able to sell every one that rolls out of the Tesla plant. A fall-off in orders, or a sharp rise in cancellations, would cause some serious headaches.

Source: Google News US Business | Netizen 24 United States

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