Last updated on October 21, 2019
Well, it's finally happened: Tesla has released the $35k Model 3. While the whole Model 3 programme had been previously moved forward two years, the failure to meet the accelerated timeline has been a regular source of criticism for Tesla over the past year. The new unveiling introduced a whole slew of variants, including: (price, range, top speed, 0-60, premium)
SR: $35k, 220mi, 130mph, 5,6s, non-PUP
SR+: $37k, 240mi, 140mph, 5,3s, partial-PUP
MR: $40k, 264mi, 140mph, 5,2s, PUP
LR: $43k, 325mi, 140mph, 5,0s, PUP
AWD: $48k, 310mi, 145mph, 4,5s, PUP
P: $59k, 310mi, 162mph, 3,2s, PUP
(Prices are without tax credits and fuel/maintenance savings)
Pricing, ranges, and features have by and large significantly surpassed initial promises. For example, the Long Range (LR) variant was supposed to be a $9K premium over SR, with the Premium Upgrades Package another $5k, but now PUP is included in LR and the price difference is only $8k.
Range and performance specs have been upgraded not just on new vehicles, but will also be upgraded on existing vehicles, where applicable, via software update. The price for Autopilot has dropped from $5k to $3k, and some features once planned to be premium-only – including the glass roof and auto dimming, power folding, heated side mirrors – are now standard. The Model S and X product line has also been modified, with higher performance at the top end and lower prices at the bottom.
To achieve cost savings, in addition to production optimizations and a recent set of layoffs, Tesla announced an unexpected strategy: they're closing most of their stores. Sales will only be conducted online. Instead of test drives, cars can be returned within 7 days / 1000 miles at no charge. As per Tesla: “Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free.”
The announcement comes right as Tesla pays off nearly a billion dollars in convertible bonds, and only weeks after the first customers in Western Europe (excepting the UK and Ireland), Scandinavia, and China have started receiving their vehicles. Concerning the latter, construction has been moving rapidly at Tesla’s new Gigafactory (GF3) in Shanghai, China:
The new Gigafactory is being funded by $2B in loans from Chinese banks at 0,45% below the prime rate (Chinese support for the factory has been extensive).
Nonetheless, the factory is not planned to start producing until Q4, and in the meantime, vehicles are being imported from the US. A series of one-time charges due to the start of international deliveries, plus increased inventory in-transit, is expected to lead to Tesla to not post a quarterly profit in Q1, after two profitable quarters with nearly a billion dollars in free cash flow. Profitability is expected to resume in Q2.
The impact on Tesla’s gross margins of the new low-cost Model 3s and the change to Tesla’s sales models is yet to be seen. While Tesla is not the only EV manufacturer to have a positive gross margin on its electric vehicles, it’s in a select group, and has historically had by far the strongest margins (~20% on Model 3, ~25% overall):
However, unlike other manufacturers — which can subsidize their EVs with their gasoline and diesel vehicles — Tesla must have solid profit margins, to prove that electric vehicles can survive without being artificially propped up. Previous guidance suggested maintaining 20% margins early this year — time will tell if they can deliver.
Tesla shares have risen significantly in recent days leading up to the announcement and bond repayment, but are down approximately 3% aftermarket.
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