Another reason the Tesla Model 3 may eat into Model S sales

Another reason the Tesla Model 3 may eat into Model S sales

Musk handed over the first customer Model 3 to its owner at an event last Friday, where he also pledged to meet the massive customer order demand for the vehicle with an ambitious production schedule.

These battery packs are expected to reduce the per-kilowatt-hour cost of its battery by more than 30%, which, in turn, allows the company to make a mass-market electric auto 50% cheaper than its luxury Model S.

Tesla CEO Elon Musk acknowledged issues with the Model X at the company's shareholder meeting in June.

The Model 3 has always been part of Palo Alto, California-based Tesla's plans. Musk replied that Tesla will do that "probably middle of next year".

But the handover event came as nearly an anticlimax for Wall Street, and TSLA shares started tumbling after Musk told journalists ahead of the ceremony, "We're going to go through at least six months of manufacturing hell".

Tesla has had a history of falling short of expectations, with the battery-ute coming to market about two years late due to a variety of technical and design problems. And a fully loaded Model 3 with 310 miles of range costs a hefty $59,500; the base model goes 220 miles (322 km) on a charge. In fact, the base model will only be put into production later this year.

The Tesla Model 3 is minimalistic, but complete.

Energy-dense battery cells that don't break the bank are the key to the Model 3's success.

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"Cannibalization by the Model 3 is clearly a risk - the fact that almost a third of current owners hold reservations raises concerns that the Model 3 may cannibalize sales of higher-end Tesla models upon launch", said Sacconaghi in his note.

But Musk says Tesla worked hard to make the Model 3 simpler and cheaper to make than Tesla's previous vehicles.

While the up-marketing strategy could deliver stronger profits and margins in the long run, the more immediate question is how quickly Tesla will be able to ramp up production.

Tesla appears to inspire the kind of enthusiasm Apple's iPhone generated among its fans and customers, Sacconaghi said.

The photos show a large shipment of unmounted robots that will form part of the ambitious production line.

The robots, each costing anywhere between $50k to as much as $500k can manage multiple tasks by switching adapters and moving across multiple axes.

Workers also complained that there is no clear policy for how workers might advance at Tesla.

Tesla started taking reservations for the Model 3 in March 2016.

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