Selling More Expensive Tesla Model 3s Will Keep Company Alive

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【Summary】The $35,000 price tag for the base model may be the most appealing thing about the Model 3, but it’s the more expensive dual-motor option that will stop the company from dying.

Original Vineeth Joel Patel    May 29, 2018 8:30 AM PT
Selling More Expensive Tesla Model 3s Will Keep Company Alive

The Tesla Model 3 was meant to be the vehicle that ushered in a new era of trendy, affordable, and desirable electric cars. With its futuristic design, $35,000 price tag, and Tesla badge, the Model 3 was one of the more exciting vehicles in recent times. Unfortunately, the Model 3 hasn't had an easy birth. 

Production woes and qualities issues have held the Model 3 back from being the mainstream EV that Tesla expected it to be and so desperately needs it to be. While one would expect the most affordable Model 3 to be Tesla's saving grace, it's actually the complete opposite. 

Tesla Continues To Come Out With Expensive Model 3s

Over the weekend, Tesla unveiled a dual-motor, all-wheel-drive variant of the Model 3. There's even a new version of the Model 3 sedan out that costs more than the entry-level Model S or X. So much for being an entry-level model, as the $35,000 Model 3 is still off in the distance. The thinking behind coming out with more expensive versions of the Model 3 before the most affordable option has to do with saving the company. 

Elon Musk, Tesla's CEO, put it bluntly when asked about the entry-level Model 3. "Shipping min[imum] cost Model 3 right away [would] cause Tesla to lose money & die," he wrote in a tweet. Focusing on more expensive Model 3 trims, then, is the only way for the automaker to survive. 

Sure, the Model 3 starts at $35,000, which is how the automaker can call it the most affordable option in its lineup, even if you can't purchase a vehicle at that price. But from the get-go, Tesla made it apparent that consumers wanting to get a cheap Model 3 would have to wait. The sedan was introduced with a long range battery pack that cost $9,000 extra and the premium upgrades package, an additional $5,000. 

This means that consumers have had to pay $49,000 for a Model 3. The new all-wheel-drive variant raises that price up to $54,000, as it's an extra $5,000. Those prices are without Autopilot.

A new "Performance" variant of the Model 3 is coming in the near future and that vehicle, as The Verge points out, will start at $78,000. Prices for that model can climb to $86,000. Deliveries of the first dual-motor Model 3 sedans will begin in July, states the outlet. 

Tesla Model 3 3.jpg

It's All About The Money

Why come out with $78,000 vehicles before the highly sought after $35,000 model? The answer is simple – it's all about the money. As The Verge claims, Tesla makes more money on vehicles that cost more. Despite targeting a 25 percent margin on the Model 3, the automaker is still losing money on every model that it ships, as its earnings for the first quarter of the year reveals. 

Offering more expensive versions of its most affordable car could help Tesla stick around. And there's also the issue of performance. Tesla, with both the Model S and Model X, has become known for its blistering performance. Tesla boldly states that the Model X is the quickest SUV in the world, which is something that it backs up with a zero-to-60-mph time of just 2.9 seconds.

Early adopters with enough money will probably want a Tesla that has similar performance to its more expensive machines. The dual-motor variant won't disappoint in that regard. As The Verge reports, the vehicle is expected to get to 60 mph in just 4.5 seconds and will have a top speed of 140 mph. 

While that should be enough for the majority of drivers, there are always those that want to go quicker and faster. The Model 3 Performance is expected to get to 60 mph from a standstill in 3.5 seconds and have a top speed of 155 mph. While those figures aren't nearly as quick as the Model X or Model S, which can get to 60 mph in 2.5 seconds, it should be enough to satiate consumers.

Other sporty touches that are offered on the Model 3 Performance include a carbon fiber spoiler and 20-inch wheels. The model also comes with the brand's Premium Upgrades Package and the long-range battery pack. So it should have a range of roughly 310 miles. 

A dual-motor Model 3 was one of the most requested items from Musk, states The Verge, as was the Model 3 that actually cost $35,000 before incentives. Now that the dual-motor version is out, the cheaper model should be right around the corner, right? That doesn't look like the case. 

Tesla Model 3 2.jpg

Will The $35,000-Model 3 Ever Exist?

The outlet claims that the vehicle is still some ways away. The target date for the specific model is always changing, as well. Over the weekend, Elon Musk stated that the entry-level model won't be made until "3 to 6" months after Tesla cranks its numbers up to 5,000 Model 3 units a week. Earlier this month, we learned that Tesla was only producing roughly 2,660 Model 3 sedans a week, so consumers are going to be waiting a long, long time. 

Money and quality issues are two major issues for Tesla. To improve its financial standing, Musk, as The Verge reports, has asked the company's finance team "to comb through every expense worldwide, no matter how small, and cut everything that doesn't have a strong value justification" in an internal email that leaked onto the Internet. In another email, Musk made it apparent that he's "trimming activities that are not vital to the success of [Tesla's] mission." 

Back to the more expensive Model 3 sedan for a second, though. Some aren't sure if the $35,000 variant will actually ever exist, because of the strain it will put on the automaker financially. 

"Undoubtedly, Tesla is in dire need of cash," said Michelle Krebs, an analyst at Autotrader. "Musk has said he doesn't want to go outside for it so that means they must generate it internally. And they can't do that with $35,000 Model 3s thus the high-end versions will go on sale first. It may well be that a $35,000 Model 3 is a unicorn." 

Coming out with expensive, high-performance versions of the Model 3, though, could spawn another issue for Tesla – the cannibalization of its larger Model S sedan.

"They simply cannot afford to sell $35-40,000 cars and they will put it off as long as possible," said Sam Abuelsamid, a senior analyst at Navigant Research. "While the $80+k Model 3 might help that car in the short run, it is also likely to cannibalize sales of the Model S so the net benefit to the bottom line might be negligible. My guess is we won't see more than a token number of low end [Model 3s] until late in the year." 

In the end, an affordable Model 3 is becoming an interesting proposition for an electric automaker that has carved a niche for itself in the premium, luxury segment. Waiting for the $35,000 Model 3 seems like an absurd idea in light of recent changes, as it might never come out. 

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