Tesla has completely launched its original $ 35,000 model 3. Later on Thursday night, the company announced a fundamental change in what would be the most affordable version of its first mass market car.
Compared to the version put on sale on February 28, the new $ 35,000 model 3 will now use a different battery pack, it will no longer have manual seats or cloth trim, and it will only be available to order by phone. or at one of Tesla's stores.
But the recently announced changes go beyond features and cosmetics. The version of the car Tesla announced in 201
And while customers will come up with a seemingly better car for the money than it replaces (assuming they save the trend that 78 percent of Model 3 sales happen online, or not being sold when they try to buy it on the phone or in person), it is a sign of how the well-documented chaos on Tesla can break some of the company's most concrete goals.
Model 3 was Tesla's first car for the broader market. From early on, the company's "master plan" – as published by CEO Elon Musk in a 2006 blog post – began building a desirable electric sports car to convince people that EV can be cool (which was not an easy task at the time), use revenue from that to help finance a more affordable luxury sedan, and plow the funds from the efforts of a car that hundreds of thousands of people could buy. All this happened, and the plan succeeded.
When model 3 was finally unveiled 10 years later, in March 2016, Tesla promised it would start at $ 35,000. It built up a preorder list of over 400,000 customers based, at least in part, on that promise. These customers also put down $ 1,000 and give Tesla some $ 400 million in cash to help bend their business without having to sell equity in the company or raise funds that will add to the company's growing debt.
But then Tesla had so much trouble increasing the production of model 3 in the early months that it had to push back many of its own deadlines. As it suffered in months of these delays and headaches – like Musk called "production hell," the company felt billions of dollars faster than ever.
To fix this, Tesla basically recycled Musk & # 39; s original "master plan" approach. The company focused on building the highest models of Model 3 first because they made the most profit. If the company made the $ 35,000 version of the car too early, Musk said Tesla would die. Thousands (or maybe even hundreds of thousands) of customers who were waiting for the cheapest version of Tesla's cars had to wait, all while the federal EV tax credit was slowly disappearing.
Throughout 2018, $ 35,000 promises model 3 over Musk. He quizzed many conference conversations with investors about how difficult it was to make a version of the car that Tesla could sell at this price point, as if thin profit margins were not a known amount in the automotive industry.
"Our goal is to create electric cars that everyone can afford," Musk said in a conversation in October. "If we can produce the $ 35,000 car today, we would. We need more work, there's more work to do before we can get $ 35,000, and make it a positive gross margin. We're probably less than Six months from that, but it's our mission. "
On these conversations, Musk and his co-managers talked about all the things that had to be done right to make this elusive version of the car. Tesla had to do so at very high volumes, using economies of scale to reduce the overall cost. It will also have to do with the battery packs it does with Panasonic on the company's Gigafactory in Nevada to reduce the cost per kilowatt hour enough to make the $ 35,000 work price. Tesla must also make concessions for admitted comfort, such as manual seats or a laundry interior.
This was all so difficult, and it took so long that Tesla created a brand new version of Model 3 – a "medium" version with a 260 mile battery pack – in the meantime. Announced in October, there was an attempt to create lower-income buyers (many of whom probably expected $ 35,000 model 3) while helping the company beat its high sales targets over the last few months of 2018. (Musk's midrange model 3 " an intermediate step "to the $ 35,000 version. It has since been interrupted.]
While Musk is known For missing deadlines, announced Tesla that the $ 35,000 car was for sale on February 28 – comes in during the October "six month requirement." But the "mission" to make the "work" to get the price of producing the $ 35,000 car down to a point where Tesla could win a profit was mostly dead on arrival. Tesla announced two versions of the car that day: $ 35,000 Standard Range Model 3 with cloth trim and manual seats and $ 37,500 Standard Range Plus with 20 more miles of range and a premium interior.
Tesla also said on February 28 that it was only able to reach the award-winning $ 35,000 prize money by reducing costs elsewhere in its business and closing most of its stores and switching to online sales, as well as closing down workers. (Tesla later reversed this decision in part and keeps some stores open, though it continues to let sellers go.) After years of work, Musk couldn't solve all the design, engineering, and manufacturing advances required to sell the original $ 35,000 version of the car he imagined. Either that, or he felt he had run out of time and money to continue trying after the company recently had a record steam in deliveries.
Tesla never sent any of the $ 35,000 Model 3s, though. Customers who ordered orders saw their delivery windows delayed by weeks or months, and some reported that Tesla sellers attempted to sell them to the Standard Range Plus in the meantime.
This week's announcement was the last nail in the coffin. The planned 220-mile range Model 3 with manual seats, cloth fixtures and whatever cost reductions Tesla planned, is dead. Now, Tesla will sell a $ 35,000 model 3, but it will be the Standard Range Plus version of the car with premium interior and a software limited battery. It will not be sold online where Tesla saw 78 percent of its sales of model 3, before the announced store closures. It also comes with some of the Standard Range Plus features disabled, such as Tesla's music streaming service, live traffic navigation and heated seats.
Tesla says the decision was made because the Standard Range Plus model sold six times more than the $ 35,000 version. "Given the Standard Plus popularity over Standard, we've made the decision to simplify the manufacturing business to better optimize costs, minimize complexity and streamline operations," the company wrote.
As is often the case with Tesla, the reactions to this change have been mixed. Macquarie Capital analysts Maynard Um and Tim Liu, who consider Tesla's stock more optimistic than most on Wall Street, said in a Friday survey that the move could be good – but mostly because it will drive more people to buy higher prices for versions of the car, which leads to more profits.
But others are not optimistic about what this means to consumers. "Tesla was the one who decided that $ 35,000 was the magic number for a reasonable EV," said Jessica Caldwell, CEO of Edmunds, in an email. "The company supported itself in a corner by making such a big deal that Model 3 is the exact price without knowing exactly how to do it."
Since Tesla buyers often pay more for high-tech features (like Autopilot), Caldwell said that this latest move "probably won't have a major impact on model 3 sales." But she said it "delivers another hard blow to the company's reputation."
Supporters of Tesla will point to the fact that Tesla found a way to sell a version of model 3 at the price of $ 35,000 which is better than the car the company originally promised. It now comes with power seats, a better interior, and the ability to pay for a little more range and other features that it might not otherwise have had.
But if Tesla's whip sleep over the past few years is any indication, nothing is ever set in stone. The $ 35,000 model here is finally here after a number of fits and starts. How long this iteration remains is someone's guess.