325,000 Model 3 orders and counting - the implications for Tesla

In less than a week, the Tesla Model 3 managed to rake in an astounding 325,000 orders - all for a potential revenue of $ 14 billion - a feat that is by no way ordinary, and is already being cited as the most successful product launch in history. Tesla managed to set this incredible sales figure based on pure hype - they didn't advertise the product at all. So what does this mean for Tesla and more importantly for the car industry?

In my 20 years in business, I have seen companies grow and die off. In the early days of the internet, Altavista reigned supreme in the search engine kingdom, however the arrival of Google marked its demise. Today, Google, from a search engine company, is one of the largest and most complex companies in the world, offering a myriad of services and developing new technologies and trends, some that make it and others that don't, but still it is growing stronger. Google innovated and knew that growth was not just organic, differentiation was needed in order to succeed.

You might question, how is this related with what is happening with Tesla? Tesla, started off as an underdog, a small company that had a dream - sell electric cars and bring them to the mass market. Its competitors, unlike Google's were companies with over 100 years of history, all multi-billion, and with no significant newcomers in the last decades. Tesla's approach has been defined by Elon Musk. Elon Musk is to Tesla what Steve Jobs was to Apple. With him it works wonders and he can drive people to applaud him and laud at his efforts in promoting electric mobility.

Tesla's business plan was simple but very effective - start by building a reputation of a premium automotive company, create a car which will become an object of desire (let's face it, who wouldn't love to own a Tesla Model S?), and then launch a vehicle for the mass market - that is, make the technology available to the market.

This is what Tesla has done with the Model 3, and the market has replied. 325,000 cars of a model that isn't yet available and with waiting times that will definitely extend past 2020, is a statistic that has its positives and negatives. The positives are obvious - Tesla is in demand, they managed to secure $ 325,000,000 in pre-order deposit cash, which will definitely help the liquidity of the company.

This is by most standards a success, however it can be a very dangerous situation for Tesla if not managed correctly. Tesla have promised deliveries starting end 2017, and I think it is safe to assume that volume sales will start when the Gigafactory is ready and fully operational, so that will push the deliveries in volumes to 2019 at least. This means, for most potential buyers that registered their interest after the first few hours the reservations started, deliveries will be in 2020 at least. This is of course, excluding problems with deliveries and manufacturing.

The problem with such a huge order is that Tesla is not ready yet to handle similar orders. Customers who put their deposit will start becoming increasingly inpatient come 2018. More so, if more orders come in (which might happen with the phase 2 unveil) these numbers will be larger, and people will not request their $ 1000 back fearing that if production goes through and they lose their spot in the waiting line, years will have to pass before they will get a new car.

Other manufacturers, like Chevrolet and Nissan, did not take pre-orders. Their policy is to start selling when production is ready. This approach is a safe one, as there is a supply - demand scenario. Tesla however has an incredible demand but still no supply, and it will remain so for another couple of years.

There are a lot of speculations, ranging from sentiments that Tesla will take over the automotive world thanks to the Model 3, to others that spell Tesla's demise thanks to the model 3. I personally think that Tesla will rethink everything. Although it might make sense to stop pre-orders for the time being, I am sure they won't follow this route. They will continue to ramp up pre-orders, and push on manufacturing lines that can handle larger numbers of cars, at least to the capacity of how fast the Gigafactory can churn out cells.

There is a lot to come, and lessons to learn, even from Tesla. Nobody was expecting this kind of success, a success so large that can result in failure. Let's hope that Tesla makes the right decisions so that they take the maximum benefit form this event and help make the electric car more plausible for all automotive buyers.