Tesla is starting to solve its production problems. Now it has delivery ones.
On July 2, Tesla announced that more than 5,000 Model 3s had rolled off assembly lines over the previous seven days, meeting a goal it had been falling short of since 2017. But now Tesla is faced with the challenge of delivering all those cars to customers.
Tesla lacks a dealership network, so it’s reliant on a combination of its own stores (not in all US states) and home delivery, the latter of which it has promised to customers who live 160 miles or farther from the nearest service center. The pileup has meant thousands of Tesla vehicles waiting in parking lots around its factory in Fremont, California, a development that lead investors betting against Tesla to speculate about sputtering demand. The real culprit, though, seems to be logistics.
Tesla CEO Elon Musk warned investors on a 2016 earnings call that the company’s existing delivery system would not be able to handle the expected production. “The delivery of the cars is where the investment is needed,” he said. “[If we] deliver three or four times as many cars, we don’t want to have three or four times as many delivery centers. How do we make that delivery process more streamlined, [with] less paperwork, less bureaucracy, and get people ahead-of-time, really well-produced instruction videos for how to use their car?”
The carmaker has yet to solve that problem, and now has 420,000 deposits for the Model 3. In July, it told new customers about a “sign and drive” arrangement. Instead of an hour-long walkthrough at Tesla stores, new Tesla owners can watch Model 3 orientation videos and drive off within five minutes, although customers complaining of defects in some of the newly delivered cars might warn against that.
The company also has started experimenting with deliveries directly from its Fremont factory. On July 28, Musk made one of the factory deliveries himself, to a customer in Los Angeles. Musk used the opportunity to also advertise what he described as a cleaner, more convenient way to deliver cars.
But limitations to this approach are obvious. Only a fraction of Tesla’s customers live close enough to make factory-direct shipping cost effective (if it is at all).
Tesla produced 53,339 vehicles in the second quarter of this year with a large share of them, about 15,000, still in transit. SEC filings this May attributed the delays to “short-term operational and logistical issues.” The company uses trucks, trains, and ships to send its cars around the world.
Tesla is now scaling its Fremont factory to 600,000 vehicles per year, Musk told investors in February. Once it does so, no number of home deliveries by Musk will be able to solve its problems.