Tesla has made big headlines at the Chicago Auto Show by announcing it will be unveiling its first mass market car on March 31. the car will be called the Model 3, which Tesla expects to deliver in 2017. That is a very aggressive timetable for its first mass market car. According to a letter to shareholders, the electric automaker plans on investing more than $1.5 billion in factories, new charging infrastructure and more stores, all of which are needed if it has any chance of meeting its deadlines.
The Gigafactory, which is Tesla’s new investment in Sparks, Nevada, will be built out with equipment to support cell production. Tesla wants to have 500,000 cars to market by 2020, so it needs the Gigafactory to boast “extreme economies of scale,” which is the only way to reduce the cost of the lithium batteries that form the backbone of Tesla’s electric strategy.The Model 3 will eventually be built in Fremont, California, although the company may also have capability of building the cars in China.
Tesla has 140 retail and service locations globally, which is nowhere near what they will need to service the new Model 3 on a big scale. The company will open 80 additional retail locations. This gives them maximum opportunities to showcase the Model 3 to consumers.
There are 3,481 supercharger stations around the world, but key to Tesla’s strategy is upping the ante on electric. Although you can charge your car at home with a wall unit, the supercharger stations provide better speed and range. With the supercharger, 30 minutes of charging gives the car 170 miles of range.
Tesla enthusiasts who have not been able to afford its luxury vehicles will be excited about the price tag on the Model 3, which the company confirmed will cost $35,000. The Model S sedan retails at $75,000, and the Model X SUV (which begins deliveries in the second half of 2016) begins at $80,000 before incentives. Tesla will begin taking reservations on the car on March $31, for just $1,000. With government tax incentives for buying electric running as much as $13,500, that means you could purchase the Model S for just over $23,000 – making this a car that packs great value. Unfortunately, the incentives tap out after a carmaker has 200,000 cars on the road in the United States, a threshold Tesla may cross as early as 2018. That means that by 2019, the incentive to buy a Tesla Model 3 will have evaporated.
Tesla needs a stunning success in the mass market in order to turn the company around. After eight straight years of losses, the company lost a record $889 million in 2015. Much of the debt is from the massive costs to construct the Gigafactory in Nevada. There will not be a Signature Series, which signals Tesla’s intent to make an affordable car. The $1,000 fee – which is much lower than its customary $5,000 reservation feee – will provide an infusion of cash for Tesla, but it is nowhere near where the company needs to be in order to turn a profit. But Tesla and its founder, Elon Musk, are clearly betting that a lower reservation fee will entice huge numbers of people who want to buy a Tesla.
Tesla’s announcement has generated some pressure on other competitors to offer more features in the $30,000 to $35,000 class, particularly for Audi, BMW and Mercedes-Benz. The car will also significantly undercut the Chevy Bolt in the US.