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Tesla’s credibility is going up in flames–just like its cars…

Tesla 3
credit: tesla

Designing, building and marketing motor vehicles is hard. Tesla is beginning to figure that out (as I previously noted here), but more importantly, so are Tesla’s prospective customers, as Recode.net reports:

Tesla is continuing to see demand for its first mass market car, the Model 3, with an average of 1,800 new orders a day.

But on its quarterly earnings call, CEO Elon Musk revealed about 63,000 people have cancelled their Model 3 preorders. The number of orders went from approximately 518,000 to 455,000, Musk said.

‘Those cancellations occurred over the course of more than a year,’ Musk said on the call. ‘I think [these numbers] are inconsequential. With a small amount of effort we can easily drive the Model 3 reservation number to something much higher but there’s no point. It’s like if you’re a restaurant and you’re serving hamburgers and there’s like an hour and a half wait for hamburgers, do you really want to encourage more people to order more hamburgers?

Musk is dismissively referring to potential customers who forwarded $1000 dollars to reserve a Model 3, with delivery dates being consistently pushed back, and no real end in sight. Perhaps the end of 2018 is the latest projection.

Musk said he has no doubt that the company will be able to reach a production rate of 10,000 cars a week by sometime in 2018.

While Musk reiterated the difficulty of the next few months, he also said he’s never felt better about the company.

‘When I said ‘manufacturing hell,’ I meant it,’ he said on the call. ‘We know this, we signed up for it. Not blaming hell because we bought the ticket.

Somehow, I suspect potential Tesla buyers are not encouraged by that explanation. Or this one:

credit: car&driver

We are very confident about costs [of Model 3 production],’ he said.

‘When we make mistakes it’s because we’re stupid, not because we’re trying to mislead anyone,’ Musk continued. ‘We aspire to be less dumb over time.

Golly. Don’t most people want to spend $30,000 dollars and more for products produced by companies that aren’t stupid? Honesty is nice in the right context, but one can’t fix stupid, not at those prices.

But let us say, gentle readers, you’ve bet on the future, and plunked 1000 of your hard-earned dollars down on the ephemeral Model 3. Let us further say you’ve decided Tesla’s future more likely lies in bankruptcy court than in delivering functional automobiles, and want your money back. How’s that working out? Wired.com reports:

Tesla CEO Elon Musk [the Model 3] to the world on March 31, 2016. In the days following the Model 3’s debut, hundreds of thousands more people placed deposits, netting the company what amounts to a humongous interest-free loan. How humongous? According to its latest earnings report, Tesla holds $616 million in customer deposits. Most of that money comes from Model 3 reservation holders.

But not all of those reservations (more than half a million, by the latest count) will translate into sales. Placing a $1,000 deposit is one thing. Throwing down for a car that starts at $35,000 is another matter. And while Tesla may have delivered its first 30 Model 3s on Friday, most reservation holders won’t receive their cars until 2018 at the earliest, leaving plenty of time for second thoughts and changed circumstances.

What about those with second—and third—thoughts? Just how well does Tesla handle refunds?

Many deposit holders have taken to Twitter to complain to Musk directly about their late refunds. In a poll posted to the popular Tesla Motors Forum, a majority of respondents reported waiting more than a month to receive their reimbursement. On other message boards, claims of 5-, 6-, and 7-week waits are common, and many say they’ve held out even longer. ‘It has been three months,’ wrote /r/teslamotors user UnDosTresPescao on Reddit on July 3. ‘I have called/emailed them several times over the last month and a half asking about status. Every time they ask for my address and say that a check will be promptly on its way. The check never comes.

Uh-oh. Holy fraud, Batman! But maybe it’s not Tesla’s fault?

In email correspondence between Tesla and deposit-holders that WIRED reviewed, customer service representatives supplied a variety of explanations for late refunds. Two blamed a third-party error. Others said Tesla had received more reimbursement requests than it could see to in a timely fashion. Several stated that a ‘system failure,’ ‘IT issue,’ or ‘database error’ within Tesla had interfered with the company’s ability to process payments.

Un huh. Perhaps the dog ate the refund, or the mailman slipped on a banana peel? I know! It’s Donald Trump’s fault! In any case, there is trouble on the horizon in electric car paradise:

A greater, and more likely, threat to Tesla is the effect late refunds could have on the support of its devotees. For years, Tesla has mostly sold cars to early adopters, technology buffs, and fans of Musk who were willing to tolerate the company’s growing pains. The Model 3, which starts at $20,000 less than an entry-level Model S, gives more people than ever the chance to personally invest in Tesla’s vision.

But it also gives the company more people than ever to appease — and, potentially, disappoint. ‘A deposit says, I’m part of your team, I believe in you Tesla, I believe in you Elon,’ says Ethan Mollick, a Wharton Business School professor who studies customer loyalty and crowdfunding campaigns. ‘But it also hurts more when Tesla takes two months to return your money, instead of two weeks. It breaks the social contract, as much as it does any financial contract.

As I’ve noted in previous articles, EV buyers are in the upper 7% of American wage earners, so the prospect of having $1000 dollars sitting in someone else’s bank account likely isn’t as galling to them as it would be for people in the lower 93%. However, it seems having greenie bragging rights and street cred is somewhat soured by an infinite and unknowable delivery date. And there is another factor that may be of even more concern, even for the 7%:

On Thursday, congressional Republicans proved that even car nerds can get wrapped up in the tentacles of tax reform. The House of Representatives released an early draft of a bill to remake the taxation system, one that would kill the federal tax credit that gives up to $7,500 to anyone who buys an electric car.

Created as part of the 2009 stimulus bill, this credit was meant to make the price of a planet-saving EV at least sort of comparable to one powered by gasoline, at least until battery and electric power generation technology get cheaper. [skip]

The House bill would nix the whole thing and, in the process, maybe create two American automobile markets, one where EVs are available, and one where they aren’t—a fossil fuel-soaked Upside Down.

For automakers, especially those that have hit the accelerator on electric plans, getting rid of the tax credit makes the job of selling electric cars a lot more complicated. (Electric vehicles still only account for about 1 percent of American car sales.)

As I’ve been saying since I began covering EVs, without government support, EVs will almost certainly cease to exist—as they should. Even the new Chevy Bolt, a sub compact EV, sells for around $36,000 dollars. Conventionally powered vehicles in the same class sell, well equipped, for $30,000 or less, and over the average lifespan of a vehicle, an EV owner cannot possibly recover the difference in saved fuel costs.

As I’ve also reported, GM has actually admitted it loses money on every Chevy Volt it sells. GM has, however, never admitted how much, but reasonable estimates run into tens, even hundreds of thousands of dollars per unit. Most Chevrolet dealers will not stock the vehicle, and some won’t even sell it on special order. I can’t imagine the Bolt will be any more profitable, after all, it labor costs are no cheaper for EVs than conventionally powered vehicles. One suspects GM shareholders are not screaming: “build EVS at all costs–and we really mean all costs!”

In many respects, this is a battle of conflicting political philosophies. On one hand progressives believe it is government’s obligation not only to encourage people to do what progressives think right, but, if they have sufficient political power, to force them to do what’s right. Interference in the market is, for such people, not a bug but a feature, and very much to be desired, as is spending unlimited amounts of other people’s money. Conservatives, however, believe products should thrive or fail on their own value. If a product is not sufficiently technologically advanced, doesn’t meet the needs of a sufficient portion of the population, or is priced at more than the market will bear, government has no business trying to create an artificial market to prop up the private company that manufactures it. Thus did the Obama Administration pour billions into the universal commode of failed greenie ventures like Solyndra, Fisker, and many others. The article notes EV manufacturers are “cranky” about the prospect of losing federal subsidies to push their wares, but so do the states, most of which involved are of the blue persuasion:

States that have been working hard to boost the electric vehicle market will be cranky, too. Getting rid of the federal support for EVs would put even more pressure on states to come up with incentives to help them reach their own aggressive emissions goals. ‘Now incentives would have to be funded by the state or funded by the carmakers to make it attractive for the consumer,’ says Xavier Mosquet, an auto industry analyst with Boston Consulting Group. California’s Air Resources Board oversees the ZEV program, and it will have a harder, more politically fraught task in front of them as they decide how to handle their mix of carrots and sticks.

Imagine that. States forced to be fiscally responsible by not unnecessarily wasting taxpayer dollars.

The question is whether the US will be a leader in this transition, or whether we’ll develop technology from elsewhere, after it becomes more competitive with existing technologies…

No, the question is why the federal government spent a decade wasting money on technology not ready for the minor leagues, to say nothing of prime time? When—and that’s a very big “when,” EV technology progresses to the point EVs can compete, financially and in terms of convenience and flexibility, with conventionally powered vehicles, people will buy them without government coercion. The US does not need to be a leader in an immature technology without any reasonable prospect of significant improvement, even in the long term, and never at taxpayer expense. Oh yes, and Barack Obama, at a visit to a Volt plant, once promised to buy one when he left office. GM must have that bill of sale around somewhere…

Perhaps we could convince the Chinese to steal our EV secrets? That would set them back decades.