Tesla sets its sights on the mass market

The Californian electric carmaker Tesla aims to conquer the mass market for the first time ever with its Model 3. With a USD 35,000 price tag and a battery range of 320 kilometres, the vehicle could appeal to a broad audience. John Dyer reports from Boston.

The new Model 3 could be a game changer for Tesla as the American electric carmaker attempts to conquer the mass market. (Image credit: Tesla)

The new Model 3 could be a game changer for Tesla as the American electric carmaker attempts to conquer the mass market. (Image credit: Tesla)

Tesla has long been one of the most exciting companies in the auto industry. Even when it has been chronically unprofitable. And now the American electric carmaker faces its biggest challenge yet.

Game changer

Last week on Thursday night, Tesla unveiled its Model 3, a mass-market car whose success or failure could make or break the Silicon Valley-based company.

Priced at around USD 35,000 and with a range of about 322 kilometres on a single charge, the Model 3 sedan is half the price of Tesla’s luxury Model S and a third of the Model X sports utility vehicle. It’s the company’s bid at reaching a far broader audience that its current customer base of wealthy, green-minded buyers.

“This is a game changer for Tesla,” says George Peterson, president of consulting firm AutoPacific. “They have to go for higher volume and really stretch.”

51,000 vehicles sold in 2015

Last year, Tesla only sold around 51,000 cars. Musk’s goal this year is to sell 93,000 vehicles, a paltry amount compared to luxury brands that Musk considers his competitors. Tesla founder and chief executive Elon Musk’s goal is to sell up to 500,000 cars by 2020, and the company is constructing a new factory in Nevada in the hopes of making this goal a reality.

Tesla’s dismal finances are showing the strain. The California electric carmaker lost USD 900 million last year, triple the losses from the year before even though sales increased by 27 per cent. The company is investing USD 5 billion into its so-called gigafactory in Nevada. But if the Model 3 doesn’t sell, Musk and his investors are going to have to bear those costs alone.

More bells and whistles

Tesla enthusiasts were lining up at Tesla stores throughout the US on Thursday in anticipation of the launch.

“I’m confident the Model 3 will have many more bells and whistles than my Model S,” said Tony Wetzel, 50, who was waiting outside a store in suburban Boston, adding that he looked forward to seeing whether the car had semiautonomous driving technology.

He doesn’t actually expect to receive the car until at least a year or year two. Tesla was late with delivering its two previous models. The Model X, for example, had manufacturing problems, particularly with its upward-opening doors.

And as Dan Glaves points out, there could be a timing issue with the gigafactory output intended for the Model 3: “If they are delayed a lot, it could create under-utilisation.”

Competition from the start

But competition for the middle class market is high. General Motors’ electric car, the Chevrolet Bolt, is due to hit the market later this year with a USD 30,000 price tag and a similar driving range as the Model 3. Nissan’s electric Leaf, at USD 30,000, is also increasingly popular.

Barclays estimates that 95,000 buyers would reserve Model 3 purchases, or three times as much as the Model S when it went on sale four years ago. The Model S required a USD5,000 deposit, whereas the Model 3 only requires a USD 1,000 deposit.

Buyers will also receive a USD 7,500 federal tax credit that expires for the company when it hits 200,000 in sales in the US.

End of Tesla?

Critics are sceptical that Tesla will actually make it with the new Model 3.

“Model S sales have flattened, and Model X is turning into a disappointment, and now nothing is going to happen until the Model 3 comes out — probably not until mid- to late-2018,” said Mark Spiegel, a hedge fund manager at Stanphyl Capital Management in New York.

On its current trajectory, the company will sell more cars but still lose money. Spiegel doesn’t see how Musk could cover the costs of the gigafactory unless he pulled off a miracle.

“The Model 3 will not save the company,” said Spiegel. “The Model 3 is going to speed up the end of the company.”

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