How Tesla's Model 3 Could Conquer Low-End Luxury
What happens when the price of electric cars falls lower than the gasoline-powered competition? That’s the question Tesla Motors Inc. wants to answer with its Model 3, which will carry a $35,000 price tag at its unveiling on March 31. But we don’t need to wait until the Model 3 goes on sale, because Tesla already has an inexpensive electric vehicle to learn from: the Model S.
Sure, you might not think of a $70,000 sedan as cheap. The sticker price doesn’t even even include the thousands in add-ons purchased by most Tesla shoppers. But within the class of competitors—premium, large-sized luxury vehicles—the Model S is a bargain. It’s faster, safer, and by many measures more convenient than its fancy, gas-chugging peers. In less than four years it has become the top-selling large-luxury vehicle in the U.S., already outselling high-end options from Mercedes-Benz, BMW, and Audi.
The Model 3 is designed to replicate this success in a much bigger class of car: entry-level luxury (also known in the industry as “compact executive” or “small luxury”). This group is currently led by the BMW 3 Series and the Mercedes-Benz C-Class. Elon Musk, Tesla’s chief executive officer, has compared the Model 3 in size to the Audi A4, a five-seat sedan with a roomier feel than those of some compact peers. For the newest Tesla to dominate entry-level luxury by the same margin held by the Model S in large luxury, it would mean sales of almost 170,000 a year in the U.S.
Analysts have been skeptical about the rollout of next-generation electric cars amid the long slump in oil prices that started in 2014. U.S. gasoline prices have held below $2 a gallon for all of 2016, and the rebound to higher prices is expected to be long and slow. That could substantially reduce demand for electric cars that compete with such mass-market compact cars as the Ford Focus, Chevy Cruz, and Honda Civic—all costing less than $22,000 and enjoying annual U.S. sales of more than 200,000 per year.
But in the entry-level luxury market, cheap gasoline shouldn’t be much of an obstacle. The Model 3 will be one of the most affordable cars in the class, even before accounting for government incentives for purchasing electric cars and savings on gasoline. If the $35,000 Model 3 retains some of the performance and design thrills that have become Tesla’s trademark, gasoline savings will be just another perk for the brochure. We’ll soon know more.
The Model S sedan redefined electric cars for the American consumer. The car rockets from 0 to 60 miles per hour in as little as 2.6 seconds—faster than most of the world’s priciest supercars, including Lamborghinis, Ferraris, Porsches, and McLarens. With no engine up front, it has a huge crumple zone and the highest safety ratings of any car on the road. Its all-electric range approaching 300 miles per charge means most drivers never need to power up outside their own garages. There’s also the possibility that Tesla’s industry-leading autopilot features will be extended to the masses in the Model 3.
The Model 3 will be unveiled at Tesla’s design studio in Hawthorne, Calif., on March 31. The first deliveries are scheduled for next year.
Sure, you might not think of a $70,000 sedan as cheap. The sticker price doesn’t even even include the thousands in add-ons purchased by most Tesla shoppers. But within the class of competitors—premium, large-sized luxury vehicles—the Model S is a bargain. It’s faster, safer, and by many measures more convenient than its fancy, gas-chugging peers. In less than four years it has become the top-selling large-luxury vehicle in the U.S., already outselling high-end options from Mercedes-Benz, BMW, and Audi.
The Model 3 is designed to replicate this success in a much bigger class of car: entry-level luxury (also known in the industry as “compact executive” or “small luxury”). This group is currently led by the BMW 3 Series and the Mercedes-Benz C-Class. Elon Musk, Tesla’s chief executive officer, has compared the Model 3 in size to the Audi A4, a five-seat sedan with a roomier feel than those of some compact peers. For the newest Tesla to dominate entry-level luxury by the same margin held by the Model S in large luxury, it would mean sales of almost 170,000 a year in the U.S.
Analysts have been skeptical about the rollout of next-generation electric cars amid the long slump in oil prices that started in 2014. U.S. gasoline prices have held below $2 a gallon for all of 2016, and the rebound to higher prices is expected to be long and slow. That could substantially reduce demand for electric cars that compete with such mass-market compact cars as the Ford Focus, Chevy Cruz, and Honda Civic—all costing less than $22,000 and enjoying annual U.S. sales of more than 200,000 per year.
But in the entry-level luxury market, cheap gasoline shouldn’t be much of an obstacle. The Model 3 will be one of the most affordable cars in the class, even before accounting for government incentives for purchasing electric cars and savings on gasoline. If the $35,000 Model 3 retains some of the performance and design thrills that have become Tesla’s trademark, gasoline savings will be just another perk for the brochure. We’ll soon know more.
The Model S sedan redefined electric cars for the American consumer. The car rockets from 0 to 60 miles per hour in as little as 2.6 seconds—faster than most of the world’s priciest supercars, including Lamborghinis, Ferraris, Porsches, and McLarens. With no engine up front, it has a huge crumple zone and the highest safety ratings of any car on the road. Its all-electric range approaching 300 miles per charge means most drivers never need to power up outside their own garages. There’s also the possibility that Tesla’s industry-leading autopilot features will be extended to the masses in the Model 3.
The Model 3 will be unveiled at Tesla’s design studio in Hawthorne, Calif., on March 31. The first deliveries are scheduled for next year.
You can return to the main Market News page, or press the Back button on your browser.
