The century-old car business model is being revolutionized by Tesla Motors, but the company is not enjoying a ride free of any challenges.
After the record pre-orders in just one week, Tesla's brand strength has been compared with the biggest name in consumer technology, Apple. Every Tesla car model that rolls off the production line seems to be as hot as a new iPhone. Given Tesla's high-tech products and Silicon Valley roots, it's tempting to infer an Apple-like future for the automaker, according to .
Tesla's ability to collect pre-orders doesn't mean the company is free of facing challenges and it does not guarantee its survival in the long run. There are major differences between the consumer electronics business and the car business.
The most fundamental difference between Apple and Tesla is the fact that the vast majority of Apple products are contract-manufactured and not built by the company itself. Compared to modern cars, consumer electronics are relatively simple to manufacture.
Rather than the manufacturing process itself, the quality of electronics products is determined by design, software and materials. The quality of assembling is more important in the auto industry because a car is far more physically complex than any electronic device.
One of the challenges Tesla Motors faces is figuring out how to deliver an increasing production of Model 3, to answer the very high-demand and fulfill all the pre-orders.
The vehicle maker needs to figure out how to grow from a luxury electric vehicles niche maker to a mass producer, according to . It is still unclear if Tesla will choose to contract with an established automaker or supplier or do all the manufacturing at its Fremont, California, assembly plant.
Among the issues faced by Tesla if choosing to keep the production in California is finding enough skilled labor. The California Bay area is more well-known for its skilled software engineers than for manufacturing workers.
Despite such a great volume of pre-orders for the Tesla Model 3, another challenge will be how to sell its cars. Tesla's network of service and retail centers spreads in just 24 states and encompasses now fewer than 100 locations. This sales model might work for luxury cars but not for Model 3.