Model 3 Will Likely Be Lowest-Priced Tesla Ever Produced

Tesla

JUL 21 2016 BY ERIC LOVEDAY 75

Tesla Model 3

Tesla Model 3

Tesla Model 3 - Image Via Datcode on Imgur

Tesla Model 3 – Image Via Datcode on Imgur

Tesla CEO Elon Musk says there’s really no need for a Tesla that’s priced lower than the Model 3 due to what he believes will be extensive car-sharing in the future.

Musk made this statement in the Tesla Master Plan Part Deux.

Here’s the statement made by Elon Musk:

“A lower cost vehicle than the Model 3 is unlikely to be necessary, because of the third part of the plan described below.”

And here’s the third part of the plan, in its entirety, explaining why Musk believes a Tesla cheaper than the Model 3 isn’t really necessary:

Sharing

When true self-driving is approved by regulators, it will mean that you will be able to summon your Tesla from pretty much anywhere. Once it picks you up, you will be able to sleep, read or do anything else enroute to your destination.

You will also be able to add your car to the Tesla shared fleet just by tapping a button on the Tesla phone app and have it generate income for you while you’re at work or on vacation, significantly offsetting and at times potentially exceeding the monthly loan or lease cost. This dramatically lowers the true cost of ownership to the point where almost anyone could own a Tesla. Since most cars are only in use by their owner for 5% to 10% of the day, the fundamental economic utility of a true self-driving car is likely to be several times that of a car which is not.

In cities where demand exceeds the supply of customer-owned cars, Tesla will operate its own fleet, ensuring you can always hail a ride from us no matter where you are.

While we’re all for car sharing, as it reduces the number of vehicles on the roads and thus reduces emissions, we’re disappointed by Tesla’s choice to make a $35,000 car the cost of entry into the Tesla electric car market.

$35,000 is still above the average new light passenger vehicle price (which is at ~$33,500 if we include cars, trucks and SUVs – the average passenger car price is thought to be some ~$7,500 lower still). The Model 3 is a smaller sedan, so it’ll only have limited appeal to the wider masses at its upper-end price (for its segment), despite seeming to be an excellent car on paper.

Honestly, we’d love to see Tesla go a bit more down market by offering an electric car without all the bells and whistles at a price-point starting with a “2”, but it now seems like that’s a dream that won’t come true.

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75 Comments on "Model 3 Will Likely Be Lowest-Priced Tesla Ever Produced"

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What you’d like to see and what is economically feasible are two different things. You think the Model 3 is too small, yet you want something cheaper. Look at all the electric cars that are cheaper than the Model 3- none of them have nearly as big a battery, and all of them are tiny.

Yeah, and I think Eric and probably most people can’t grasp the bigger picture here. The forces of the market will find a nice balance between owning and sharing/renting a Tesla.

If there are few owners, they will earn more money (more renting demand spread on fewer cars) so getting a Tesla will be cheaper there (because it earns you more money). The other way around many Teslas in one spot will mean that you can almost always rent one for cheap, no nead to own one.

It is the opposite,

US is the hardest place to sell an EV. 7500 to 13000 off each one & EVs under 50000 make up just .4% of sales. No where in world are rebates ignored more. U can get 50% off a new EV here and $99 month payments and they dont sell. Tesla sells half its EVs in US because they appeal to upper class vehicles buyers.

Now you think you can convince middle America to both buy an 40000 EV and turn around and car share it to ‘dramatically lower the true cost of ownership’? No way Jose

Car sharing is not a new concept introduced with EVs, & that concept has already failed in US with gas cars, outside a few dense cities.

You want to sell a lot of EVs, price has to be par with gas. 19999 and 250 miles, not 40000 and loaning your car out on weekends

Only 0.4% of sales? I think your number is 2-3 years out of date.

And while it’s true that PEV sales are now growing faster in Japan, and Europe, and until quite recently were growing much faster in China (I’m not sure what’s going on there now), it’s also true that a couple of years ago, sales in North America were growing much faster than in those other markets.

We need to show some patience here. I think, or at least hope, that in a couple of years, we’ll see PEV sales start showing significant and accelerating growth, in most or all first-world countries.

This has been a very long time coming, and patience is hard. I’ve been hoping to see gasmobiles become obsolete for something like 40 years now. But I think EVs entering the classic “S” curve growth of a disruptive tech revolution is now getting so close we can almost taste it!

It’s actually close to 1% and much more in CA, but you do have a point in that EV are not selling well, even when it can be $40/mo like SparkEV in some lease deals. One reason is that people just don’t know, and dealers / automakers don’t advertise them. Heck, I had no idea before reading about SparkEV on Yahoo or CNN or whatever it was. I always thought EV cost $300+/mo even with subsidy. You can see what just a little bit of word getting out can do to EV sales from Apr. 2015 SparkEV of 920 cars (from about 100/mo before) in 2 states (under 20% of population). Extrapolate to 50 states + being the quickest car under $20K (or lowest cost lease car, period), and it could’ve taken huge chunk away from Yaris, Elantra, Civic, Cruze, etc. But nope, no more advertising after Apr. 2015 event. And to top off, keep it sold out in much of the places until 2016. Therefore, I have to think that lack of sales, at least in SparkEV case, is that Chevy doesn’t really want to sell too many and doesn’t want to create too much demand. I suspect saving… Read more »

Excellent points – due to wide disparities in dealership behavior, low advertising, limited markets and limited supply by OEMs, you cannot assume that people in the US don’t want EVs.

There is waaay too much ignorance (no value judgement here, just lacking knowledge about EVs), too many dealerships downplaying the vehicles, and a deliberate lack of vehicle availability by the OEMs in order to draw any reasonable conclusions about the plain and simple economic mass appeal of EVs in the USA.

I would challenge the assumption that car sharing reduces the number of cars on the road. It might reduce the overall number of cars, but since they will have a higher usage factor, it might not help road congestion.

Maybe if you count cars parked on the side of the street… 😉

Depends how we actually do the sharing. If it’s just a time-share I tend to agree with you. But if we actually share a car so that more people are in the average car – it’s now barely above one! – then we can reduce the number of vehicles on the road.

I think in most cities your ideally use something more like a minibus on popular stretches and something smaller than Model 3 for the outliers (where usually only a single person is traveling at a time).

All of this depends on self driving cars becoming a reality first, so cars can pick up people along a route and drop them off individually where they like.

I’m not sure there is any good case to be made for them producing a cheaper car. Tesla is a premium brand. Nobody expects BMW to produce a $12,000 automobile. If they did, it would affect the entire brand.

Uhh.. Do you mean SMART? Smart cars are built by BMW you know…..

Smart is produced by Mercedes. I know germans – They all look the same.
But still it is Mercedes that make smart cars.

Not quite. By Daimler, the company that owns both Smart and Mercedes.

Mini Poopers are made by BMW

Smarts are made by Mercedes

Mini is BMW. And I guess Tesla could also start a second company, focused on cheaper cars.

But I don’t know if that would be so clever.

Not $12000, but they do have the 1 series which is a low 20k car. I’l love it if Tesla would build a sporty, affordable 3 door hatch. I’m actually waiting on that, I don’t want a sedan.

+111

This comment by Musk is very America-centric. In Europe a lot of people like cars smaller than the Model III, which is not really a small car outside the US and a handful of other markets with US-sized cars.

Larger cars, certainly the S, are a real pain in towns with ancient narrow streets and limited parking. This is why the hot hatch is so popular in Europe.

In terms of cost, the developing world needs cars both cheaper, and more robust, than the III. Given that basically all auto market expansion will come from developing countries, it is critical that EVs be sold massively in the developing world. Car sharing won’t replace this need; the car still serves a social ranking function in those markets, like it did not too long ago in the industrial world.

Excellent points!

BMW has the 2-series and 1-series. Mercedes the A-class and B-class. Volvo has the 40-series.

So yes, we do expect premium brands to have smaller cheaper models too. Especially since the Model 3 is still a pretty large vehicle so there is a big segment left for them to explore.

Is it a priority? Not really. They will have their hands full with more important models and segments for a long time to come. But when the larger cars and trucks/buses are finished and in production then it might be time to look at this once again.

Car ownership will not disappear over night even if we get self-driving cars someday, a lot of people of the older generation will want to own their car anyway.

David Murray said:

“I’m not sure there is any good case to be made for them producing a cheaper car.”

Well, I rather suspect that if you asked the actual original founders of Tesla Motors, Martin Eberhard, Marc Tarpenning, and Ian Wright, you’d get a sharply different opinion.

It’s true that under the leadership of Elon Musk, Tesla has followed the original vision of developing successively less expensive EVs; what Tesla’s original business plan code named the “DarkStar (Roadster) — WhiteStar (Model S) — BlueStar (Model ≡)” progression.

But there was absolutely nothing in the plan advanced by Eberhard, Tarpenning, and Wright which suggested stopping the advance towards a truly low-priced BEV after the third model! (I’m not counting the Model X there, as that is, or at least was originally intended to be, an offshoot of the Model S.)

Some auto maker is going to produce a true Everyman BEV to be marketed in first-world countries. The Model ≡, with a base price of $35,000, isn’t priced low enough to qualify as an Everyman car.

If Tesla isn’t going to aim for a true “EV for the masses” car, then it’s time for Tesla to move over and let another company lead the EV revolution.

Push-pull may have it right this time.

I have long argued that Musk was never about building an “every man’s” car.

Musk’s emphasis on expensive gimmicks like Falcon wing doors. 360 deg. panoramic windshields, hepa filters, variable suspension, ACC amplified crash control, voice and keystroke actuated command prompts, automatic door openings and closings, stainless white upholstery, one piece headliner moldings, etc.

These and a host of other nonsensical innovations only serve to distance Tesla from the goal of building a truly affordable EV that will actually revolutionize the automobile market like the Model T did.

Ford built a car his employees could actually afford. Tesla does not.

useless gimmicks? No. Think again.

Not an Everyman’s Car? True. None of Tesla’s current and planned models are.

Although I am disappointed to some extent with this new master plan, it is truly difficult for someone who has been that rich, for that long, to know/imagine/remember what it’s like to have a middle-class income, or less. And, it’s also difficult for someone who has lived primarily in one culture, to truly understand and appreciate another (like the market in Europe for smaller, practical vehicles). You can see the numbers on a market report, but it doesn’t sink in as well.

I have no issue with the TM3 being the lowest priced Tesla. If Tesla wants to continue delivering cars with great safety, range and technology it will have to deliver them at a higher price. Trying to strip down cars to make a lower price point possible takes time and energy away from focusing on other goals, like entering new markets. I think that legacy automakers have the capacity and expertise at delivering lower cost alternatives and they can corner that market if they choose to do so. Because of competition someone else will certainly fill the void for affordable sub $30k cars.

Yes, but the primary reason that people aren’t buying EVs in droves already is the sticker price. Range might, but every other factor (infrastructure, government support, maintenance) certainly isn’t having any effect whatsoever as there are other jurisdictions that prove that hyphothesis false.

I think TMC is giving the legacy automakers room to make compelling all electric vehicles at compelling prices.

This approach benefits everyone, and nudges others into optimal market behavior.

For those that want a cheaper M≡, the solution is simple. Buy a used one. =)

Bingo. Now I just have to convince myself to wait for 5 more years…

I can’t see how they could get it cheaper unless there’s new battery technology

The way I’ve read this, is that Tesla will *never* reduce the price of the M3. Even in 10 or 20 years time, when batteries will presumably be cheaper.

But hey, whatever.

But if they just keep it at $35K forever, it would be reducing the price due to inflation.

Inflation is something most people don’t recognize as a price reduction. But it really has a big influence.

If the price stays the same for 6 years, the product had a 11.3% price cut. Assuming a 2% inflation rate.

Thats why you hear so many old people saying: “In my days, three quarter cent could pay for a whole family dinner”

I think that a little bit of misinterpretation may be happening here. Based on Elon’s post, my impression is that with the “factory as the product” additional factories will be brought on line, leading to higher production, less transport costs, improved availability. I take his meaning as being that the Model 3 (probably all models) will actually cost less and improve in quality over time as the result of this focus on the factory.

Based on Elon’s comments, the Model 3 is intended to be the low cost option. Instead of creating another model, the emphasis is going to be on making the low cost option even lower cost over time. This interpretation fits more in with Elon’s other statements in my estimation.

That’s how I read it. The $7500 tax incentive will eventually expire so the eventual base target price for the base Model 3 will be the current post-incentive price of $27,500.

Good point!

his idea makes sense. Most people value owning a car instead of relying on ride sharing every day.
This is the best of both worlds.
If you want to offset the cost, let it earn money.
If you don’t need to offset the cost, enjoy a pristine interior 🙂

Eventually, people may be able to have their first M3 as their car-share rental, until such time it becomes profitable enough to afford their second privately owned M3?

I see what he means, but I just cannot see it happening to me where I live. Not anytime soon.

So many other things would have to change first before people can give up on car ownership … mind you this will greatly vary. It might work in New York, but it certainly not work where I live.

There will always be cheaper cars, but not from Tesla and not because the reason Elon gave.

It’s not so much a concern of pristine interior, but the tremendous timing requirements and practicality impact. This is a lot, and I mean a lot less convenient than using your own car. Talking from the side of a person who does not own one and needs to rent one …. Unless you are a coach potato sitting at home and not going anywhere on the weekend, I just cannot imagine it.

It already exists. And works. Just look here: https://en.drivy.com.

Yeah, I just don’t see the vast majority of car owners giving up private ownership. A car represents freedom, not merely transportation. Not a lot of people are willing to give up their freedom!

* * * * *

@a-kindred-soul

I doubt anyone will argue that there can’t be a niche application for the automotive equivalent of a time share condo. But ride sharing, like time shares, will always remain a niche market; it’s never going to go mainstream.

I suspect a lot of people who sign up for using their car for ride sharing will seriously rethink that decision about the second time they have to clean puke out of the carpet, from someone who called for a ride share car because they were too drunk to drive and puked on the way home.

I wouldn’t do it, but I’m not quite in that “millenial” generation, where car ownership is not valued as it once was. There have been articles here and elsewhere about how automakers are concerned about their future, with sales per capita going down in the US, with or without the recession.

Plus, with this new generation not being better off than their parents, on average, combined with the net migration into/near city centers, the economics of car ownership no longer make sense to this new generation coming of age.

Enabling ride sharing so you can earn money on your Model 3 makes a $40k Model 3 monthly car payment a sub $15k car payment.

Model 3(that you rent out when not using) or a Nissan Versa ICEv ?

Easy choice IMO for people on a budget.

You can enable ride sharing, made ultra light carbon fiber body, strip it down, do whatever both with battery car and with gas car. Not so much difference here.

I had tried not owning a car couple of times in my life. Trust me, it gets annoying quite soon, even initially you may be happy not worrying about car maintenance. Just setting up/removing a child seat becomes a major hassle. Then try jump into the car at Sunday night and go somewhere immediately – not so fast. Taxis may be simply not available at some peak times, even most stinky ones. You just waste too much time waiting for your ride and planning even in the city.

This is the modern day EV equivalent of Musk telling the peasants “Let them eat cake!”

OK, maybe there’s a teensy weensy bit of hyperbole in my comment above. 😉

You keep refilling your cloudy glass with “H8-eraide”, while failing to see an opening intentionally made for other automakers to provide solutions where Tesla says it will not tread…

Though, I think a 4th generation more affordable Tesla car for mainstream would help formidably the mind of average people about electric cars. After the Elon quote about 4th generation car I really imagined a Tesla car like the very popular Golf, with 250 miles of range and starting at something like 22000$ to 25000$ that would be, definitively, the turning point of EVs against ICEs story. But, I only imagined that this would be possible with only much higher energy density improvements and with huge improvements in battery costs. So my bet was 2025 for this “people” car.
But we will see what it will happened, maybe further along the path, Elon will slightly change this part of the plan…
I only desire that this plan will succeed, and the sooner, the better.

To a certain extent, I can see why Elon has what appears to be a sour-grapes attitude toward a BEV less expensive than the Model ≡. After all, Tesla had to abandon its original plan to wait for commodity battery cells to come down in price far enough to let Tesla sell the BlueStar/ Model ≡ at a profit. Instead, Tesla has had to invest billions of dollars to build a battery Gigafactory.

But there is certainly a market, a first-world market, for the BEV equivalent of the early Honda Civic or, for a more recent example, the Kia Rio. If Tesla isn’t making plans to aim at the sub-$25k market segment, and eventually the sub-$20k segment, then they’re leaving themselves open to be undersold by another EV manufacturer. Maybe BYD can succeed there?

I actually dont think Tesla should go much lower that $35k for future cars because they shouldnt make their span too wide. Compare with Mercedes, BMW and Volvo which all are well above average price even for their cheapest models.

Tesla may instead buy a smaller EV manufacturer in the future that they could use to make low end cars, with something else than Tesla written on them. Future will tell.

There may or may not be a smaller cheaper Tesla but if there is it will be a while and has probably been pushed down the priority ladder…

In terms of sustanability and money makeing the best targets are semis, trucks, and buses…
And it appears that Tesla has shifted their direction that way as they should…

The model 3 is cheap enough that the majority of people can afford it when factoring in TCO…

Car sharing interesting. Yes, renting out your car is no different than airbnb or renting out 1 or 2 rooms in your house to pay for the mortgage.

Will people do it? Sure, will it take over the world? Probably not.

I just want the Model Y.

Then I will replace my AMG.

Elon Musk said:

“A lower cost vehicle than the Model 3 is unlikely to be necessary…”

Well, it’s a good thing Elon plans to leave Tesla Motors in another 4-5 years. It’s clear he’s no longer leading the way on vision.

Here’s hoping Tesla Motors doesn’t follow the path of Blackberry… once the smartphone industry leader, but it failed to keep up with more innovative products. That happened once upon a time with Ford and the Model T, too.

It is a subtle way to say: We can’t figure out how to make Model 3 at $35k. …, we can’t even make profit and generate sales on $70k+ car and we are running out of money, what do you expect from us now, flying carpet for $500???

Poor zzzzzzzzzz. Suffering so much from chronic, long-term TES*!

It’s really sad that you’re losing so much money on your “short” investment in Tesla stock, zzzzzzzzzz. But posting Tesla-hating FUD here isn’t going to help you stop losing money.

*Tesla Envy Syndrome

I’m not in the stock market now or any time soon. But shorting TSLA looks really tempting to me. Just look at EPS (earnings per share) – it is going down a cliff and reaching some whooping $7 (negative) in the last quarter. They were making some minimal profit in 2013, and were going down consistently and are reaching around -$15k per car sold in 2016. And now Musk is on desperate mission to save Solar City from debt default to avoid full collapse due to margin calls on his personal stock loans and SpaceX loans to Solar City. Face the reality, they are in business of selling stock (aka pumping and dumping as in The Wolf of Wall Street) and greenwashing. Battery cars are secondary product.

Based on your analysis, Henry Ford should have given up before the Model T, for which he had to spend a fortune building not just factories but steel mills to bring his costs down. I’m sure the conservative investment advisers in 1905 were saying that no large-volume car company had ever turned a profit – yet those losses were laying the foundation for a revolution.

A quote from econedlink.org:

“A complex surrounding the Highland Park Plant included a power plant, machine shop, and foundry. Ford was starting to bring together the various stages in the manufacture of automobiles , a strategy called vertical integration. By the 1920s, Ford had purchased a rubber plantation in Brazil , coal mines in Kentucky , acres of timberland and iron-ore mines in Michigan and Minnesota , a fleet of ships, and a railroad. These efforts to vertically integrate helped Ford make sure his company would have raw materials and parts when they were needed, guaranteeing a continuously operating assembly line. These efforts also enabled the company to profit from more of the processes involved in producing the automobile.”

Dear Elon,

Dean Kamen was wrong about Project Ginger. Our cities aren’t being redesigned around them. I’m sorry to tell you, I don’t think a significant percentage of electric vehicle owners will want to rent them out. Co-own perhaps, but not rent them to total strangers.

If in ten years I’m wrong, I’ll admit it. If you’re wrong, please design and build a sub-20k vehicle.

HAH! Add me in, +1

Elon’s vision of autonomous ride sharing is not like the current models of car sharing like Car2go where you have to go get the car on the side of the street somewhere. It’s like Uber more like Uber without a human driver. I imagine you would have a higher priced choice to ride alone and a lower price option to share the ride with others just like Uber anothers. It would be door to door service. You can include your car in the fleet at any time but there will also be Tesla owned fleet cars. This model is working very well in urban areas with it’s most expensive component, the driver, and would only work better without one from a cost perspective. In dense cities it costs almost as much to park a car as it does to own one and parking has many, many issues. This is a no-brainer ones full autonomous driving is approved. Agree with others that Musk was not saving $35K was the cheapest price you will ever see but rather Model 3 was the lowest end model they will make. Important part of MP II was the 2 yr cycle factory improvements to improve… Read more »

I would never ride share my model 3, I don’t want strangers soiling my interior with food, drinks, drugs, diapers, body fluids etc…

Agreed! In addition, there is the issue of insurance to cover commercial usage of your car. Not so sure car owners will actually make a profit.
What if the renter doesn’t own a car and causes an accident? Who bears the cost of interior damage caused by a negligent renter?
I think renting out my car would devalue it. Car purchasing for renting purposes will require a significant paradigm shift in thinking.
If renting out the car causes downtime to me the owner due to repairs….well I’d rather not.

There are neat freaks and slobs, I’m a neat freak but my son is a slob and I’m always asking him to clean up his mess in the 2016 Leaf. When I get model 3 if my son won’t comply he won’t ride lol

I think Mister G revealed the primary flaw in Musk’s thinking.
I also wonder if Tesla’s stock price can sustain if they don’t go after an even more mass market vehicle in their future plans. Maybe a China or Far East factory will change their metrics.

I like to see a 2 seater, like the roadster, that cost around the $20k range

It’s available today….golf cart. Teslas cannot be cheap because they are made in America and we want all American workers to have a living wage and not depend on welfare or foodstamps. If you want cheap wait for the Chinese version.

I think this model of ride sharing that all the domestic automakers are jumping on is based more on the role that domestic automakers see themselves in with the US market, rather than the overall US market itself.

China is about to flood the US with cheap cars. The big four won’t be competing in that segment of the market because they don’t know how to make cheap cars. So they are shifting to a higher end, lower volume model (that, plus trucks).

US automakers know how to make cheap cars – as long as you have no ethical or moral qualms about exploitation. That’s why union-busting has been such a big political objective among so-called “conservative” political movements: wear us all down so that we will do more for less until we’re right back in the sweat shops of the 1890s.

Car sharing is fine if the only thing is to move people and “clean” cargo. But if you want to take your dogs with you or carry “messy” cargo like home depot runs, one must own the car. You can’t take your dogs on most (all?) public transport, either. I just came from dog beach, and there’s no way to do that without owning the car.

One could argue there might be some market that will address such concerns, but they won’t be economically viable compared to low cost car ownership, such as SparkEV or even gas cars.

I think Musk’s argument was you could buy a Model 3 and have it earn income while you were not using it to make up the cost difference.

Obviously that is dependent on full autonomy technology and regulatory approval. Plus general acceptance of lower vehicle ownership.

If people quit purchasing the lowest price ICEs, in favor of car sharing services (Uber, etc.), that entire line of vehicles may not survive. The low prices are predicated on extremely high volumes.

General acceptance of lower vehicle ownership is the problem I’m talking about. You don’t have nearly the flexibility with car sharing or public transit. Then even if you happen to use car sharing sometimes, many (most?) still end up owning cars, god beach being the example I give.

“China is about to flood the US with cheap cars.”

If Trump becomes President you won’t see that happen until at least 2025.

Yes Strongman Trump will crush the Chinese “believe me” and will save the universe “believe me” lol

If China lets President Trump build golf courses in Beijing, his hostility to it will be as forgotten as the offensive things he said 24 hours ago. That’s his idea of making a great deal… for himself.

The idea of Tesla going it alone with a car service raises several questions:

1) How does Tesla compete with Uber with a comparatively tiny fleet? 2) How does Tesla compete using $35k cars versus $25k cars like a Prius. The cheaper fuel does not cover the greater depreciation of the Tesla. 3) Aside from manufacturing the cars, is there any reason to believe Tesla would be better at this than Uber?

Tesla needs a significant first mover advantage in self driving cars even though Google is likely ahead right now. Tesla needs to let the base Model 3 price drift down to ~$29k by 2022 and introduce a $45k car to fill the gap with the Model S. Finally, Tesla needs to let other self driving cars participate in its car sharing service to get enough scale. Even if it does all that, I still don’t see Tesla having an enduring advantage over Uber.

Tesla will never build the next people’s car, any more than Apple will ever build and sell a computer that everybody can actually afford.

Looks like Tesla is embracing their role as the American BMW, after all.