This week, the enigmatic chief executive of Tesla, Elon Musk, took to Twitter to announce two more powerful and more expensive versions of the Model 3 of the automotive firm, the highly praised “mass market” that seems, for now, to deviate more and more away from its price of $ 35,000.
The new Dual-Engine Model 3 and its improved “performance” version, which costs $ 78,000 and, as Musk claims, will be 15% faster than BMW’s German rival M3, $ 66,500 (£ 59,905 in the UK). M3, they are not unexpected. Tesla did something similar with its Model S, launching double-engine and performance versions with increasingly dizzying price tags.
The high-end versions capture the headlines and serve the enthusiastic market. But by producing them instead of the base model and double the price that gave Model 3 its important “mass market” nickname, Tesla is apparently in danger of becoming a niche more like Porsche, which sells 246,000 a year, more well that its parent company VW, which sells more than 6 million vehicles with the Volkswagen brand per year.
Brian Johnson, senior analyst at Barclays, said the company’s current level of investment and valuation is based on the promise that “Tesla will be a dominant player in the mass market automotive industry, similar to the iPhone in the cell phone business. ”
He could be forgiven for thinking that Tesla was already sending models of $ 35,000, since it is still the quoted price of the vehicle and every news comes with that “mass market” warning. But is not. The cheapest version that is sent to owners is the long-range variant with a larger battery that starts at $ 44,000.
In a tweet this week, Musk said Tesla needed “between three and six months after [producing] 5,000 vehicles per week to ship the $ 35,000 Tesla” to reach the target cost. Tesla only produced around 2,270 models 3 per week in April. But the company still targets 5,000 vehicles a week in “approximately two months,” delaying the $ 35,000 version to at least October and probably to 2019.
Why? “Send the minimum cost model 3 immediately would make Tesla lose money and die,” said Musk.
Since Tesla consumed $ 750 million in cash in the last quarter while struggling against the production problems of Model 3, he can not afford to make his record losses greater than they already are.
Ivan Drury, senior manager of industry analysis at Edmunds, said: “In spite of differentiating Tesla in many other ways, Musk is taking a page out of the old book of automakers by first prioritizing the release of the highest levels of equipment. .
“This initial wave of Model 3 aims to surprise consumers and help with profitability.”
Tesla still has more than 450,000 reserves for Model 3, each insured with a reimbursable deposit of $ 1,000 (£ 1,000 in the UK), which will take years to complete and shows that there is strong demand for the electric car.
Drury said Musk hoped to keep those who want the most basic version of Model 3 waiting. He said: “While Tesla is notorious for production delays, it benefits from having the most lenient customer base in the industry. automotive “.
Most Tesla buyers are the first to adopt and have bought the brand, which allows them to bypass the delays and other inconveniences that a regular buyer in the mass market may not have.
The big question is how many of those reserves are made by more cost-sensitive buyers attracted by the possibility of owning a Tesla for only $ 35,000. Currently, they benefit from a non-negligible income tax refund of $ 7,500 in the US. UU By buying hybrid or plug-in electric cars.
Drury said: “The only potential fly in the soup is that Tesla is invading at the end of its tax breaks: buyers more sensitive to price may not stay once they run out.”
The US government tax credit only lasts until Tesla, or any other manufacturer, sells 200,000 electric vehicles in the country. It will then remain available for two quarters before being eliminated in the next 12 months. Tesla has more than 300,000 vehicles on the road around the world and is expected to cross the 200,000 barrier in the United States soon.
“We really do not know what percentage of reserves the $ 35k version wanted, or how many wanted model 3 for $ 27,500 with the federal tax refund,” Johnson said. “But once it’s removed (probably in the first quarter) and people realize they will not get it, it’s likely that cancellations will start.”
Even once the basic $ 35,000 model is available, it could be a rare thing. It only comes in black (add $ 1,000 for anything else), it lacks Tesla’s “Improved Autopilot” (which is $ 5,000 additional) or its future “Complete Self-Driving Capacity” ($ 3,000 in the Autopilot), all which adds up quickly.
Drury said: “Typically, luxury compact car buyers get 20-30% more in terms of options or higher-priced equipment levels beyond the base. It is very unlikely that they will see consumers at this point of time. price without selecting at least one or two options “.
While the cancellations would mean that Tesla would reimburse $ 1,000 per piece, it would be the perceived weakening of demand that would likely have a greater impact on the company, the price of its shares and the ability to raise more funds, if necessary.