Tesla Motors announced their newest car, the Model 3, is now available for pre-order. It’s always been Tesla’s stated purpose to bring down the cost of electric vehicle dramatically, by first charging people for high end cars, and using those profits to innovate the cost of cars down to affordable levels for the general public. It’s an admirable goal that combines the best intentions with good incentives, using idealism to drive profits.
Tesla has, confusingly, sold 3 models of cars prior to the Model 3: the early Tesla Roadster (all over $109k price), the ultra-luxury sedan Model S (starting price at $76k, but most sell at over $100k), and the newer Model X SUV (about $5000 more than the Model S). Few Model X’s have been shipped, and only about 2500 Tesla Roadsters were ever built. The vast majority of Tesla’s automobiles have been Model S’s between 2012-2016. In that 4 year span, roughly 107,000 cars have been sold worldwide, with about 63,000 in the United States.
Making matters worse, Tesla has said they expect to start shipping at the end of 2017. Some analysts say that Tesla will ship about 12,000 cars in 2017 and another 60,000 in 2018. But this might be optimistic, since Tesla was supposed to start building the Model X last year, but only got a couple hundred out the factory before January.
Tesla will get better at manufacturing, but they are not ready to switch from the high end market to the mass market (or as mass market as a $35,000 base model). The Tesla “master plan” is not ready to attack this level of the market yet, but that’s not to say it isn’t successful in other ways; as Ben Thompson wrote: “The real payoff of Musk’s ‘Master Plan’ is the fact that Tesla means something.” In fact it means so much that the demand for a $35k Tesla in 2017 is something like 10x predicted supply! Tesla should take advantage of this.
The obvious economic answer to quantity demanded outstripping quantity supplied is to raise the price. Scaling Tesla’s manufacturing output to new heights is not going to be easy, but it will be easier with additional resources. And Tesla could use some additional resources (they lost about $300 million in 2014). Right now, people will be waiting around for their cars for years. Why not take some more from people who want a car sooner, so that more innovation can be done to help the people on the back-end? That’s Tesla’s whole plan anyway. Creating an affordable family car that you can only make 50,000 of every year doesn’t help many families!
Now, of course, it’s true that some of the appeal of Tesla is that they are trying to transform the auto industry, and if they charge more for the Model 3, one could argue they aren’t as transformational as they claim. But I’d counter with Thompson’s comparison to Apple, in that the Tesla brand itself is drenched in cool. Tesla’s brand is quite valuable, and the best way to help humanity with that brand is to push harder for innovation.
An awesome, widely available $35,000 electric car will come, but for now, Tesla has the opportunity to marshal more resources to build a better future; it would be silly to not take advantage of that.