For a very long time, Tesla said it was doing everything it can to not increase sales of its Model 3 sedan. But things have changed.

In the last week of June, Tesla invited reservation holders in North America to confirm their orders and configure their Model 3. This week Tesla has gone a step further, ditched its reservation system and started taking new orders for its Model 3.

But why?

It helps Cash Flow

There are two ways a company can raise cash. Go to capital markets/private investors or ask your own customers.

Asking your customer to advance money is easy, but its very difficult to convince your customer to do so. Not every company manages to sustain its product’s aura so much that customers are ready to pay for the product knowing fully well that there is a long waiting period.

But Tesla has managed to do that.

Since the time the company started selling Roadster in 2009, Tesla has convinced customers to pay a small percentage of the cars price upfront and used the cash flow to fund its operations. Tesla is doing the same now.

Earlier, ordering a Model 3 was a two step process. Customers pay a refundable $1000 to reserve their position and then they need to pay additional $2500 to confirm their orders.

Now there is no $1000 reservation. Customers can directly place their orders by paying $3,500. According to CNBC, “The $2,500 to $3,500 total deposit becomes nonrefundable once Tesla assigns the customer a vehicle identification number, typically within a few days of their order. ”

Tesla has not opened orders for customers all over the world. It’s available only for buyers in North America.

Tesla’s growing confidence of deliveries

At the end of second quarter 2018, Tesla said that net Model 3 reservations were approximately 420,000.

If we assume half of Tesla’s reservation holders to be North America, then Tesla will have more than 200,000 reservation holders in United States and Canada. A bulk of these customers are waiting for $35,000 Model 3, not the higher priced versions.

Though it’s a bit difficult to estimate how many among these 200,000+ customers are not ready to pay more than $35,000 for Model 3, the higher the price of Model 3 moves from $35,000, the lower the number of reservation holders will be.

Let’s assume half of +200,000 reservation holders in North America are in the $35,000 to $40,000 price range. A highly generous assumption.

At the current rate of production, 5000 Model 3s per week, Tesla will exhaust its greater than $40,000 Model 3 customer pool in just 20 weeks (5 months).

5000 per week * 20 weeks = 100,000 Units

This is the reason why Tesla Model 3 Rear Wheel Drive and Dual Motor All-Wheel Drive versions now have a delivery timeline of 3 to five months, while the high end performance version has a two to four months delivery schedule.

 

With Tesla looking all set to exhaust it’s current pool of customers for higher priced Model 3, the electric car maker is now ready to woo new customers who are in the market with a $40,000 to $75,000 cheque on hand. And Tesla has a teaser, don’t wait for years to get your Model 3 – just wait for two to three months.

Data from Goodcarbadcar shows that the US midsize luxury segment reported sales of 22,350 units in May and 105,478 units in the first five months of 2018.

The top three sellers in the US Midsize luxury segment are Lexus ES, BMW 5 Series and Mercedes Benz E Class

Worth the effort.


Sources: Goodcarbadcar, BMW, Mercedes Benz, Lexus