Tesla Model 3

Tesla Model 3

According to a video posted by Bloomberg this week, Morgan Stanley analyst, Adam Jonas, is in in disbelief regarding Tesla's Model 3 production estimates and the $35,000 starting price.

Tesla Model 3 Interior

Tesla Model 3 Interior

Jonas told Bloomberg:

"Our forecasts are much more conservative than the company’s forecast both this year and next. We expect this vehicle to go into a kind of soft launch mode into the fourth quarter this year and our forecast is for 2,000. Not 20,000. Not tens of thousands…delivered at the end of this year.

The point of this is just to have those initial deliveries done to get the data and the initial feedback from the community. Next year, we’re at about 80,000 units. Yes, they’ve talked about 400,000…that kind of pace of production. We are nowhere near that. Even if you go out a few more years to 2020, our numbers are less than half, maybe a third of what management is implying that they can do. In spite of that, we are constructive on the investment."

At Tesla's recent Q4 2016 earnings call, the electric automaker cleared the air about its Model 3 production timeline. The company stated:

"Our Model 3 program is on track to start limited vehicle production in July and to steadily ramp production to exceed 5,000 vehicles per week at some point in the fourth quarter and 10,000 vehicles per week at some point in 2018."

This is quite a contrast from the words and opinions of Jonas. The analyst didn't stop there, however. He believes that the Model 3 will have an average transaction price around $60,000. This would be much closer to that of a base Model S, which doesn't make a whole lot of sense, since the models were supposed to appeal to different markets, and come at markedly-spaced price points. Tesla just dropped the ~$68,000 Model S 60 from its lineup, seemingly to further separate the two vehicles, though the company claims that it was an effort to simplify the ordering process.

Jonas, speaking of the Model 3, shared:

" an average transaction price of $60,000. We think that the kind of people that will put in an order for that car…they won’t want the $35,000 version. While they technically could deliver that, we think once it’s spec’d up with the range and performance and safety capabilities that the average customer will activate, very few customers will actually walk out the door at that entry level price. It’s more of an advertisement. We think it’s going to transact more like 60 ."

Tesla has asserted from the beginning that the Model 3 will start at $35,000, prior to the federal rebate . The company has been abundantly clear over this, but has never spoken directly about the top end (although we should note that the base model will not be available out of the gate). Elon Musk did agree that the average transaction price will likely be closer to $42,000, since most people that are seeking a Tesla vehicle will expect certain options. The whole premise behind the Model 3 was to offer a Tesla product that could be mass-marketed to the public as an "affordable" option.

If ~400,000 people put a deposit on the Model 3 believing that it would be in their possession by, perhaps 2018 or so, and they have to wait until 2020 or beyond, Tesla will lose much credibility. On top of this, if they can't get their ~$35,000 vehicle - or at least a $40,000+ minimally optioned vehicle - and the only option is around $60,000, we can't imagine that too many of them will be very pleased.

Source: Forbes