Can Tesla sell enough cars until the Model 3 arrives?

Two years before the release of Tesla’s long-awaited $35,000 Model 3, Tesla finds itself at another crossroads that may threaten the company’s welfare.

Tesla has released the crossover Model X, the car that is supposed to prove the company can compete in the wider auto market and is not just producing a niche vehicle for Silicon Valley billionaires. So far the reviews on the Model X have been decidedly mixed.

In a post for Car and Driver titled “Has Tesla Sunk Itself With the Model X?” Aaron Robinson writes:

Tesla just needs a crossover to flesh out its showroom, preferably one with a sub-six-figure price. Instead, the hysterically complicated Model X may prove to be the noose from which Tesla swings. The car is at least two years overdue and far more complicated than it needs to be. The giant curved windshield, the sensor-studded self-opening front doors, those “falcon wings,” which rise at the speed of two arthritic old stage hands hauling up a Broadway curtain—they’re all fascinating but unnecessary. The X would be a challenge for Toyota to build profitably, much less Tesla.

The full-wing doors — the signature element that sunk John DeLorean’s model — have been particularly subject to controversy. Some critics see them as a pathetic attempt to wow Silicon Valley investors. Mathew DeBord was much more impressed, however:

The exotic falcon-wing rear doors, a source of much prelaunch speculation (Would they work? Would they delay the car?) were far more exciting than expected: Equipped with sensors, they operate more like avian robots than normal car doors. They wowed the crowd.

Far more important than the critics’ evaluation of the car, however, is whether customers are going to buy it. Tesla is aiming for 50,000 cars annually, including both the Model S and the Model X. Tesla has proved it can manufacture cars at this rate, but delivery is something different. The Model X on display at Tesla’s manufacturing facility in Fremont, California, in November will not be delivered until March.

Delivery may turn out to be Tesla’s weak spot. As DeBord writes: “[Elon] Musk has always been clear that the Model X is needed to get Tesla to the point where it can launch the Model 3, a mass-market vehicle that will make Tesla look less like Ferrari or Porsche and more like Honda or Toyota.”

Never one to stand still, Musk thrilled investors last week by announcing that Tesla might be able to switch to completely self-driving vehicles within two years. Google is aiming for 2020, but Musk claims that the Mobileye technology in use in Tesla’s existing vehicles makes the task much easier. Each vehicle is constantly gathering information and feeding it back to a central computer so that all cars on the road eventually end up with the information. He claims that within two years Tesla’s cars will have accumulated enough data that they will be able to function on any roadway.

Musk’s task has been complicated by the emergence of George Hotz, a hacker who claims he turned a 2016 Acura into a self-driving car in his garage in about a month. Hotz was introduced to Musk by a Tesla employee. Hotz predicted he could build a better system than Mobileye, calling the Israeli company “absurd” and “behind the times.”

Musk responded: “It’s easy to do a cool demo, it’s hard to put something out. Especially software that’s going to work on millions of different roads all around the world in a wide range of circumstances—in winter, in summer, in rain, in dust—there’s a world of difference there. George is an amazing hacker, but you don’t make production software by hacking. A hack does not work, a hack crashes.”

Musk says Hotz proposed a bet in which a Hotz-designed car would stay in its lane for the length of Interstate 405 in Southern California. The pair discussed a bet of a million dollars, but Musk eventually turned him down because he thought Hotz could probably make it work over that dedicated stretch but wouldn’t be able to use it on all roads under any conditions.

“I expressed some skepticism here, like, look Mobileye has got hundreds of engineers and they’ve been working on this problem for quite awhile and I think they’re pretty smart guys,” Musk told Fortune.

So Musk will be sticking with his Mobileye and the thousands of man-hours put into it already. But he still claims the system will be good to go in another two years.

At this point, the opposition is likely to come from the regulators. Draft rules released by the California Department of Motor Vehicles in December support the notion that self-driving vehicles will be a slow crawl. The rules place strict limits on self-driving technology and prohibit the use of autonomous vehicles that don’t have a steering wheel or a brake pedal — which describes the vehicle Google has been developing. While Google has criticized the proposed rules, calling them “a ceiling on the potential for fully self-driving vehicles,” Musk has supported the DMV — for now.

“If we can get to the point where we show that an autonomous car is safer than a car with a driver, then I think the regulators will allow it,” he says.

So Tesla continues to dance on the high wire. Autonomous, self-driving cars may be within reach, but can the company sell enough Model X’s and Model S’s to stay alive until the arrival of the Model 3? Only the next few months will tell.

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