Tesla Inc. (TSLA) is holding off on manufacturing the lowest-cost version of its Model 3 sedan, a decision that Chief Executive Officer Elon Musk says is a life-or-death matter for the electric car pioneer.
Palo Alto, California-based Tesla's outspoken leader Elon Musk took to his Twitter Inc. (TWTR) account, writing that a $35,000 baseline Model 3 will not arrive until the company hits a 5,000 weekly production rate for premium versions of the car intended to become its first mass-market vehicle. (See also: Why Tesla Is Burning Through Cash.)
Baseline Model 3 on Hold
As Tesla faces heightened competition in the EV space from niche startups, luxury car makers and traditional auto players like General Motors Inc. (GM) and Ford Motor Co. (F), the Model 3 has been viewed as vital for the company's move into the "affordable" vehicle space. Yet as Tesla burns through cash and continues to delay production targets, a "$35,000 before incentives" Model 3 looks like a long ways away. While Musk has repeatedly indicated that Tesla will not need to raise money to meet performance goals, analysts at firms like Goldman Sachs have suggested that the company will need to raise as much as $10 billion by 2020.
Over the weekend, Musk tweeted that the bare-bones version of the Model 3 won't ship until "3 to 6 months" after Tesla hits 5,000 Model 3s made per week, a number Tesla is shooting for by the end of June or beginning of July. In Q1, Tesla reported a loss on every Model 3 it shipped, despite targeting a 25% margin on the car.
Tesla's first version of the Model 3 has a long-range battery pack for an extra $9,000, the premium upgrades package for $5,000, and all-wheel drive for $5,000, altogether bumping the starting price to $54,000, Autopilot not included.
The Silicon Valley car company will offer its fastest Model 3, dubbed the "Performance" model for $78,000, with an optional Autopilot and "full self-driving" capability add on for $86,000. Musk says the dual-motor Model 3s are set to deliver in July and are promised to accelerate from 0 to 60 mph in 4.5 seconds and will top out at 140 mph. The Performance will jump from 0 to 60 a full second faster and will top out at 155 mph.
As Tesla announced its higher-spec Model 3, Musk's Twitter followers started to ask about the entry-level version of the sedan. "Shipping min cost Model 3 right away wd cause Tesla to lose money & die," wrote Musk. In efforts to cut costs, the CEO has ordered the company's finance team "to comb through every expense worldwide ... and cut everything that doesn't have a strong value justification," as read in a leaked internal email.
"Yes, my absolute goal w Tesla has always been mass market electric cars. Will finally get there with the Gen3 program," Musk added. (See also: Why the Bulls Still Believe in Tesla.)