7 Reasons Why The Tesla Model 3 Won’t Experience Demand Issues

APR 29 2018 BY EVANNEX 25


It’s easy to get hoodwinked by recent reports surrounding Tesla. Is Elon Musk really in dire straits based on such an abundance of negative Tesla press? Motley Fool’s Daniel Sparks argues that while there “are items that might look like good reasons to be skeptical… one facet of Tesla’s business investors shouldn’t be concerned about is Model 3 demand.” To that end, Sparks lays out “seven reasons investors shouldn’t worry about demand for Model 3.”

*This article comes to us courtesy of EVANNEX (which also makes aftermarket Tesla accessories). Authored by Matt Pressman. The opinions expressed in these articles are not necessarily our own at InsideEVs.

Read Also: Tesla Model 3 Tracker Hits 20,000 Produced, 5,170 New VINs Registered

Check This Out: Watch All 9 Newly Released Tesla Model 3 Walkthrough Videos

Above: Tesla’s Model 3 (Instagram: zackkrelle)

1. 455,000 reservations (or more)

For Model 3 reservations, Sparks notes that “the company boasted about 455,000 of them — all backed by cash deposits of about $1,000… [and] not once has Tesla indicated that net reservations for the important vehicle have declined. Indeed, in Tesla’s third-quarter shareholder letter last year, management said, ‘global net reservations for Model 3 continued to grow significantly’ during the period.” And on more recent investor conference calls, Tesla affirmed that reservations have remained stable.

2. Demand-generation levers haven’t been pulled

Sparks acknowledges, “Not only is the Model 3 unavailable to see in most Tesla stores, but the page of Tesla’s website about the Model 3 even pitches the Model S, essentially anti-selling the Model 3. Further, anyone wanting to put in a new reservation today can’t even access the online configurator that allows customers to choose options and accurately price their vehicles. That privilege is limited to early reservation holders. And good luck scheduling a test drive.”

3. Word-of-mouth hasn’t begun yet

Referring to the Model S, Tesla’s 1Q 2013 shareholder letter noted, “we are seeing orders in a particular region increase proportionate to the number of deliveries which means that customers are selling other customers on the car.” Sparks extrapolates the fact that it’s likely the Model 3 “will [also] benefit from word-of-mouth marketing, but potentially to an even greater degree since its lower price point gives it a significantly larger addressable market than the Model S.”

4. Model 3 hasn’t (yet) gone international

In that same shareholder letter, Tesla wrote, “Given that we have not yet delivered any customer cars outside of North America, there would appear to be significant upside potential in Europe and Asia.” Sparks adds that “International Model 3 deliveries in left-hand drive markets won’t begin until mid-2018… [and] Tesla doesn’t plan to begin shipping the vehicle to right-hand-drive markets until early 2019. International availability will be yet another lever for Model 3 demand.”

5. Demand for the Model S and X also grew rapidly

It’s reported that most analysts expected demand for Model S to be capped at 20,000 units. However, “Now, Tesla is delivering more than 50,000 Model S vehicles annually.” Furthermore, the estimated 30,000 deposit-backed reservations that Tesla accumulated for its Model X has since grown (in the trailing 12 months) into over 45,000 Model X vehicles sold. It’s conceivable we’ll see similar momentum after Tesla ramps Model 3 production.

6. Price matters

It’s likely high volume Model 3 sales haven’t even started yet. The lower-priced base-level Model 3 with 220 miles of range won’t launch until “late 2018,” Tesla’s website says. Sparks notes, “Without a $35,000 Model 3 available to order, some potential customers may be waiting until Tesla starts delivering the lower-cost vehicle before they put down $1,000 on a reservation. After all, the standard battery model comes at about a 29% discount compared to the long-range version.”

7. Competition could be a catalyst

Even though the Chevy Bolt was first-to-market, “Tesla’s Model 3 deliveries are now surging past Bolt deliveries.” Sparks argues that “there’s still good reason to believe that this could be a market where a rising tide lifts all boats.” In fact, “any new competitor to launch a long-range, fully electric vehicle actually could play a key role in helping Tesla educate consumers about the viability of this alternative to internal combustion engines.”


Source: Motley Fool

*Editor’s Note: EVANNEX, which also sells aftermarket gear for Teslas, has kindly allowed us to share some of its content with our readers, free of charge. Our thanks go out to EVANNEX. Check out the site here.

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25 Comments on "7 Reasons Why The Tesla Model 3 Won’t Experience Demand Issues"

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Not only are there probably 500,000 reservation holders. But, there are potential customers waiting for “general availability”. People who don’t put money down until they can wall into a showroom, sit in the car and test drive.

I know many people who know about the Model 3, but are not going to put deposit money down, which they believe “locks” them into a purchase.

There could easily be 1,000,000 future customers waiting for GA.

The big three have already seen car sales fall.

Yup. Thats me.(but I do understand the deposit is fully refundable). I’ve been following the model 3 and tesla story obsessively. But I don’t have a reservation and won’t get one. I’ll wait until I can walk into a tesla store and test drive one.

the Tesla store doesn’t have them for a test drive. BUT you can rent them on websites like ours in the Phoenix area for about $160 a day or get it for a week or month at a . http://www.SPARCrental.com

I think the biggest impact on model 3 demand will be the availability of the model Y. But, Tesla still wins in the end. For model 3 + model Y, the TAM (total addressable market) for $35K – $55K vehicles is pretty huge so I think Tesla has plenty of room to grow. And once Tesla gets in the 200K vehicles per year and the Gigafactory is fully built out they may have a big cost advantage over makers of comparable BEVs.

They may very well have a cost advantage, but they will have lost some or all of the tax credit and the late starters will still have it as the law stands now. The real test of demand for EVs (especially “mass market” ones) will be when the tax credits and rebates are gone. I currently lease a PHEV and plan to buy an EV (or maybe PHEV) in May/June next year. Tax credits and CA rebate, or their lack, will be very important for my decision.

If credits/rebate were, hypothetically, gone at that point, and prices as they are now, I would buy a regular hybrid without a second thought.

You should give it a second thought. In some cases there is only about $2-3k difference between hybrids and phev models. I thought you said you have solar…that extra $ is recovered in 3 years max in CA in gas savings.

The delusion is strong with this one. Anyone Who thinks that these reservations will hugely translate into sales is delusional. How big is the market for a $45-55k premium sedan? Not really big and still shrinking. For same but EV? Even smaller.

July, or shortly after AWD, is when we see sub-$45k and demand at the lower price point. It may not be 35k, but my guess is they’ll reach $40k, and possibly take longer to base-out w/o something like the Premium Upgrade Package.

I agree, and am one of the reservation holders unlikely to execute, but this car’s numbers will quickly breed demand. Model S never had the penetration this car will rapidly achieve: penetration which, itself, will sell the car.

I agree that Tesla will have a great deal of difficulty in delivering base 3’s profitably at $35k, but I also think they have NO difficulty in selling nearly as many base 3’s at $39k as they would at $35k. But that sticker shock is one of the main reasons I think Tesla should slow their 3 production just enough to get #200k delivered in July, not June. If they had already delivered 185k, it would be too late to slow the US delivery pace. But delivering #200k in mid to late June would be nearly criminally stupid. They have delivered right around 178,000 cars in the US so far. Here is hoping they find a way to push deliveries to Canada or Europe in sufficient numbers in June to keep the full credit until the end of the year, 8 months from now. The half credit would then last until the end of June, 2019. Can you imagine how many cars Tesla can deliver knowing that they have an unlimited amount of credits for nearly 6 months? The way the credit bill was crafted was that there is no limit on the credits for that phaseout period. Theoretically, if… Read more »

The full tax credit will last until the end of the year. It lasts until the end of the 2nd quarter after the end of the quarter in which the 200,000 milestone is passed, which will almost certainly happen this quarter.

There isn’t any realistic way for Tesla to delay passing the 200,000 threshold past the 2nd quarter. Sales in Canada are not that significant, and Tesla’s “final assembly” plant in Europe isn’t set up to handle Model 3’s.

Now, if Tesla were do to a massive shift of deliveries of the MS and MX to its overseas markets, starving U.S. deliveries of those cars, then I suppose it could delay the inevitable by a quarter. But that would come only at the price of getting a lot of Americans with orders for the MS and MX royally torqued off at Tesla. I think Tesla values its #1 placement in customer satisfaction more than delaying the tapering off of the tax credit by a quarter.

I also think that if Tesla was going to do this sort of massive shift to overseas deliveries only for the MS and MX, then we’d already see signs of that.

Push, I have seen that idea on timing, but I think it is wrong. If #200k sells anytime in May or June, the credit ends at the end of the next quarter or September 30th. June 30th is in the second half so the tax credit gets cut in half as of the end of the third half, so the full credit ends September 30th if Tesla doesn’t push US deliveries back a bit. The quarter in which 200k is delivered counts as the first quarter, not the one following. Jay confirmed this in a post a month or two before he retired. Here is the exact verbiage. ” The credit begins to phase out for vehicles at the beginning of the second calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles (i.e., plug-in hybrids and EVs) in the United States as counted from January 1, 2010. ” I think it is going to be difficult for Tesla to delay 200k to July, but I think it is possible, but only if Tesla deliveries tomorrow are 9,000 or less. If they are much over 10k it be much more difficult to push enough deliveries abroad (plus storing… Read more »

July or so, will most likely ADD the Dual Motor to the Long Range Option: meaning not a $40,000 US$ Model 3, but a $54,000 US$ Model 3! The $40,000 Dual Motor with Standard Battery, not likely before year end 2018 or January 2019, based on Dual Motor coming shortly after end of June, or so; with Standard Battery Promised in or by Early 2019!

The Model S and X both sold WAY more cars than the number of reservations they initially had. Model 3 will be the same, even when not every single reservation is converted to a sale.

Indeed. Those who think otherwise are showing a rather eyebrow-raising lack of knowledge about the history of Tesla’s sales.

Supply constrained vice demand constrained.

I drove about 3 hours across Ventura, Los Angeles and Orange Counties today on the 101 and I-5 and I saw at least 8 Model 3’s on the road. A few weeks ago, I saw my first. In a year or two, they are going to be ubiquitous and people who will not even care about electric cars will start to notice them. Owners will start telling their stories and people will realize gas cars are antiquated garbage. Model 3 demand is not an issue and will be here to stay.

A >50kW charger network that is the standard to which other manufacturers are only just beginning to plan to aspire.

Another Euro point of view

I doubt Model 3 would have a demand issue on a worldwide basis but it is hard to tell as we do not have a breakdown of waiting list per country neither do we know (for the US market) about the impact on demand of absence of base version and gradual end of $7’500 tax credit. I would say that anyway Tesla is more limited by its service centers network than by demand. This probably may explain why we had very early a wide geographical distribution on Model 3 allover the US. I doubt we will see the $35k version distributed in any meaningful number so if Tesla should increase production up to 5’000 cars per week I would not be surprised to see exports overseas starting rather quickly.

*Sigh* Another cheerleader article, enthusiastically waving pom-poms, from Evannex. (I identified it as an Evannex article mid-way thru the second sentence, even before coming to IEVs’ disclaimer!) Unfortunately, Evannex does not appear to understand that if you wave the pom-poms too hard, enthusiasm starts looking rather like desperation.

Now, the article does make some good points. But seriously, “Word-of-mouth hasn’t begun yet”?!?! What do you call all the comments about the TM3 that are being spread all over social media — including all the articles about the TM3 right here on InsideEVs?

That claim is — if you’ll pardon the pun — absolutely Ludicrous™! 😉

While I agree with you nearly wholeheartedly, in Michigan here, ask anyone we know about the Model 3 and they say “what huh, the what?” Ask anyone around here about Tesla and most have really no clue. In our segment, we think EVERYONE knows about Tesla and especially the Model 3, but really, outside of California, and a few other areas, people are truly uneducated. While we want to think that most people at least know and sorta understand EVs, and, of course, know Tesla and the Model 3, they actually don’t have a damn clue. It’s crazy but very, very true.

You’d be incredibly surprised how few “normal, regular, everyday” people have not even a clue about EVs, have no idea what Tesla really is or is doing, don’t know about or understand the Model 3, and are currently truly in the absolute dark about anything related. We’re talking about 95 percent or more of the auto buying population here. NO FRICKING CLUE, UNDERSTANDING, COMPREHENSION, or CARING whatsoever.

Im worried about this claims about expensive chassis. I hope this is not true and that Tesla indeed will be able to make money on the 35k Model 3.

For once an Evannex piece that, while still completely one-sided and blindly Tesla-cheering, is by and large making a good case for its claim. I’m skeptical about the assumption the base model will arrive this year, and I think not putting a number on “demand issue” makes for a rather imprecise discussion. Two people could agree there’s demand for 250k cars per year, one leveling that a demand issue and the other not.

I think there may will be demand enough for 500k a year for a few years. The reservations don’t all convert, but there’s lots of people – a large majority, I believe – who wouldn’t reserve but would still consider the car. And there are many who never heard of Tesla! And many who only vaguely know about it but don’t know about Model 3.

Basically, if Tesla can ramp up and bring the base model to market, and not have big quality problems, they seem almost certain to be production constrained for at least several more years. Whether they can make money is a more worrying question, in my view. I don’t think there’s any chance they can sell 500k cars a year at $58k…

“I don’t think there’s any chance they can sell 500k cars a year at $58k…”. Breaking news: 450k paid reservations alone in 3 days rings a bell on you?

They won’t because they already have them. They have an obscene backlog.