Elon Musk heralded as new Steve Jobs – Tesla approaches its “iPhone moment”

Elon Musk may have departed Pretoria at 17, but that matters little to those he left behind. Musk, the super entrepreneur who is redefining the automobile, space and solar energy industries, is an inspiration to thousands in his former homeland who watch his every move as an example of what is possible. But even his loyal South African fan club will have been amazed at the way Musk’s latest initiative has captured the imagination. Americans lined around the block for the opportunity to put down deposits on the new Tesla Model 3 – a car they hadn’t even seen and would only be able to take delivery of two years hence. Something not experienced for almost a decade since the mania around Apple’s Steve Jobs and his new iPhones. The ultimate entrepreneur, Musk is doubling down his Tesla bet promising to expand production to 10-times last year’s deliveries. This time, even his critics are being converted. – Alec Hogg

By Richard Waters in San Francisco

Is the electric car market about to have its iPhone moment?

Elon Musk clearly thinks so. The chief executive of Tesla Motors has never been shy when it comes to bragging about the wonders of his company’s vehicles. But based on his extravagantly ambitious new production plans, he has decided that a definitive moment is at hand that could turn the global car industry on its head.

Tesla Motors' mass-market Model 3 electric cars are seen in this handout picture from Tesla Motors on March 31, 2016. REUTERS/Tesla Motors/Handout via Reuters/File Photo ATTENTION EDITORS - THIS PICTURE WAS PROVIDED BY A THIRD PARTY. REUTERS IS UNABLE TO INDEPENDENTLY VERIFY THE AUTHENTICITY, CONTENT, LOCATION OR DATE OF THIS IMAGE. IT IS DISTRIBUTED EXACTLY AS RECEIVED BY REUTERS, AS A SERVICE TO CLIENTS. FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS. TPX IMAGES OF THE DAY GLOBAL BUSINESS WEEK AHEAD PACKAGE - SEARCH 'BUSINESS WEEK AHEAD MAY 2' FOR ALL IMAGES
Tesla Motors’ mass-market Model 3 electric cars are seen in this handout picture from Tesla Motors on March 31, 2016. REUTERS/Tesla Motors/Handout via Reuters/File

The Apple-like lines that formed outside Tesla sales outlets at the end of March were a clue. That prospective customers would queue for hours to put down a $1,000 deposit on a car they had not even seen – and which most of them would not be able to actually buy for more than two years – is testament to Mr Musk’s ability to whip up excitement in a way that no one has done since the late Steve Jobs.

If all those pre-orders turn into sales (a big “if”, since the deposits are refundable) Tesla will bank $14bn in revenues. As the company has already taken to boasting, that will make the debut of its new Model 3 the biggest consumer product launch of all time. Even the iPhone did not get to that kind of scale until its third full year of sales.

Read also: Elon Musk nails it: SA-born entrepreneur breaks another barrier with SpaceX

Based on this, Mr Musk has decided to go for broke. Tesla’s goal of hitting a production target of 500,000 by 2020 – nearly 10 times its 2015 deliveries – always looked a stretch. Now he plans to hit that output by 2018. And his new 2020 target? A cool 1m. At $35,000, but with the sizzle of the Tesla brand and incorporating many of the features of the far more expensive Model S, Mr Musk has decided the Model 3 represents a breakthrough moment.

So what is the risk that other disrupters from the tech industry, who have also been circling the automobile world, will crash this electric car party?

Mr Musk had a succinct answer, when asked about that on his company’s quarterly earnings call earlier this week: Apple and Google do not make things. They have been circling the automobile world for a while, but have yet to find a way in – though a deal with Fiat this week to make 100 self-driving minivans at least represents a toe in the door for Alphabet, Google’s parent, as it tries to put its self-driving technology on the road.

Tesla Chief Executive Elon Musk smiles as he attends a forum on startups in Hong Kong, China January 26, 2016. REUTERS/Bobby Yip/File Photo
Tesla Chief Executive Elon Musk smiles as he attends a forum on startups in Hong Kong, China January 26, 2016. REUTERS/Bobby Yip/File Photo

“Making things” turns out to be a key point here. Contract manufacturers exist in the car business, but there is no global supply chain to dial up instantly, as Apple has been able to do so masterfully with its gadgets. There is not even enough battery capacity in the world to support a mass electric car market. Only Mr Musk will have that – provided he can meet his own goals for Tesla’s “gigafactory”, being constructed in Nevada to support his car plans.

Of course, Tesla itself has also yet to prove that it can handle the challenging task of scaling up production to meet the kind of demand Mr Musk dreams of. It has not even been able to hit much lower levels of production for its existing vehicles.

Mr Musk has blamed production glitches with the Model X on hubris – a quality his company has never been short of. Compared to the overambitious SUV crossover vehicle, the Model 3 has been designed with ease of production in mind, he promises.

Even with all this, there is the not inconsequential question of demand. The electric car market has seen many false dawns, though it may finally be turning a corner. Last year sales rose above 500,000, an increase of 70 per cent.

Read also: Bloomberg View: Who’ll win Driverless Cars race – Tesla, Google, Apple?

To imagine that Tesla can match this entire global market single-handedly by 2018 takes a giant leap of faith. Mr Musk, though, has concluded that his is the only company that has a shot, and the Model 3 is the car with which to do it.

If he is right, comparisons with the iPhone will not be out of place. Like electric cars, smartphones went through many false dawns before Apple broke the market open. To produce a winning formula took a convergence of technology trends – the falling costs of processing power, increasing mobile bandwidth – along with innovations like multi-touch screens and the right packaging. The electric car industry has been waiting for a similar moment.

Mr Musk’s electric car dream always looked like one of the most audacious of technology bets. This week, the stakes got much higher.

(c) 2016 The Financial Times Ltd.

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