In one word. Disruption.
We all know that Tesla has +400k Model 3 reservations. Though there are no official figures, a major portion of the reservations must be from United States.
Where does Tesla build Model 3? Where is Gigafactory located? Where did the bulk of Model 3 orders come from? Which country makes shipping and handling easy? Which country holds most number of supercharging stations?
United States will always remain the top priority for Tesla Model 3. There is a small issue of customers losing federal tax credit once Tesla sales exceeds 200,000 units. Tesla can delay it for some time and ship some cars to Canada, but losing tax credit has to happen sooner or later. Definitely at some-point of time this year.
Even without the federal tax credit, US is still the logical choice for Tesla Model 3. Overseas customers can wait.
In my earlier article, I explained how Tesla Model S expanded the US luxury sedan market by attracting customers from different segments.
Model 3 will be no different. It will attract customers from two different segments; Small and Midsize luxury segments. Volumes are huge in both these segments.
2017 Segment (Annual) Sales:
Small luxury car: 459,665 (Monthly average = 38,305)
Midsize luxury car: 296,117 (Monthly average = 24,676)
Let us simplify things a bit and focus on the best sellers from both these segments. Mercedes Benz C class, BMW 3 & 4-Series, Infiniti Q50 and Audi A4 are the top 5 sellers in the small luxury car segment, with a combined volume of 254,430 units in 2017. These five cars accounted for more than half the segment volume.
In the Midsize luxury segment, the top five players are Lexus ES, Mercedes Benz E/CLS Class, BMW 5 Series, Lincoln MKZ and Audi A6 with a combined volume of 187,059 units, accounting for 63% of segment sales.
Less is More
Tesla is a small auto company with just three models on sale right now. Elon Musk has turned Tesla’s small model footprint into a huge advantage by stretching the price range. Model S starts at $75k and goes all the way to $136k.
Do you think it was just a coincidence that Tesla Model 3 dual-motor AWD Performance edition costs $78,000?
Cost of all options, wheels, paint, etc is included (apart from Autopilot). Cost is $78k. About same as BMW M3, but 15% quicker & with better handling. Will beat anything in its class on the track.
— Elon Musk (@elonmusk) May 20, 2018
It’s because Tesla Model S starts at $75K and Tesla wants the costliest Model 3 price to overlap with the cheapest Model S.
Model 3 price stretch brings both small luxury segment as well as midsize luxury segment into play, allowing for a larger pool of customer base.
Once again, the idea to price Model 3 around $35k was not a coincidence either. The top seller of the small luxury segment Mercedes Benz C Class starts around $40k and the second placed BMW 3 Series starts around $35k.
Tesla has to get Model 3 price down to $35k because not doing so would mean leaving the German duo with a price advantage. You cannot win without being ready to take the number one player head-on.
5000 cars per week production translates to 21,428 cars in 30 days or 270,000 cars in a year. Once Tesla clears Model 3 backlog, the electric car maker is looking at two segments with monthly average sales (combined) in excess of 64,000 units, which is more than enough to consume Tesla’s production capacity.
The top five cars in both the segments will be the biggest casualty.