Can The Model 3 Boost The Ailing Tesla Share Price?

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Can The Model 3 Boost The Ailing Tesla Share Price?
Blomst / Pixabay

Tesla has already confirmed that its Model 3 vehicle will be unveiled on March 31, 2016, and at this point the corporation will begin to accept reservations. The Model 3 is intended to be a car that thrusts Tesla into the mainstream of the auto market, and thus the vehicle will potentially have a massive impact on the Tesla share price.

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Fluctuating stock

This is extremely important for the electric car manufacturer, as Tesla stock has fluctuated over the last couple of years, and is currently trading well below its peaks of six months ago. It is hoped that the competitive price point of the Model 3 could contribute significantly to impressive sales of the vehicle, and that this will kickstart an upward Trend in Tesla stock.

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With the corporation having already confirmed that the basic unit of the Model 3 will retail at $35,000, it is anticipated that deliveries of the vehicle will begin in late 2017. It is not inconceivable, though, that this date could be pushed black, as Tesla has frequently experienced problems with vehicle release dates in the past. Nonetheless, early calculations indicate that the Model 3 will generate approximately 30 percent of Tesla’s valuation once it eventually becomes available, whether this is indeed next year, or in 2018.

There is little doubt that the ability of Tesla to compete in the mass marketplace will be critical to the valuation and future of the corporation. Although the rise of Tesla has been little short of stratospheric, it is now facing challenges in its ongoing modus operandi to become one of the most significant car manufacturing companies in the world.

The auto market is extremely competitive, and numerous companies have predictably opposed the success of Tesla, and equally decided that they will jump on the electric car bandwagon. Thus, major manufacturers such as Audi and BMW already provide direct opposition to Tesla, while Apple is reportedly also working on an Apple Car that could revolutionize the electric car niche in the coming years.

Revenue estimates

When the Model 3 is released, economic estimates indicate that Tesla will generate revenue in the region of $45,000 per unit at the time of launch. This will be achieved via ZEV credits, which are earned by the electric car manufacturer through the sale of electric vehicles and later from after-sales service. As momentum gathers after the Model 3 launch, it is anticipated that revenues for the Model 3 will increase gradually, reaching a peak of $50,000 per unit by the beginning of 2019.

However, delays could hurt Tesla considerably. If the Model 3 cannot be released until 2018, this would enable competitors to gain a head start over Tesla, and eat into its market share. Analysts suggest that this would ultimately reduce the income of Tesla by approximately 10 percent; a huge incentive for the corporation to ensure that the Model 3 is released on time. This is especially incumbent upon Tesla considering that the corporation has confirmed the low base price point of the Model 3, ensuring that profitability of the vehicle will be relatively low in terms of price per unit.

Affordable competition

Yet there remain concerns about the ability of Tesla to succeed in the mass car marketplace. In particular, the ability of the electric car manufacturer to increase production to such a degree that it is able to compete in this hugely competitive marketplace is considered dubious by some. Although Tesla enjoys a degree of brand prestige in the luxury car marketplace, it also has to face established players such as General Motors and Nissan in the more affordable end of the market.

One should not underestimate the competition in this extremely important industrial marketplace, and Bloomberg has already reported on numerous problems that Tesla faces. Quality issues, supply chain problems and production delays could all impact upon the success of Tesla in this high volume and low price segment of the auto niche.

The good news for Tesla is that at present it appears to be entirely on target for the production and delivery of the Model 3. However, the ability of the corporation to deliver the vehicle on time, deliver appropriate scale of production, and grow its revenue per vehicle will be extremely important for the long-term valuation of the company.

Some market observers believe that Tesla needs to ensure that the Model 3 is a flexible performer that offers different qualities to different market segments. At present, it has been largely reported in the media that the Model 3 is simply intended to offer an affordable vehicle that has green credentials to the hoi polloi.

Compact Model 3

However, analysts suggest that Tesla can attract numerous people to the Model 3 by producing several versions of the vehicle, intended to appeal to a wide variety of different tastes. Unquestionably, the cheapest version of the Model 3 will appeal to the thrifty customer, but other versions could deliver different characteristics that are equally attractive to consumers.

In particular, it is suggested that a smaller version of the Model 3 could have a massive influence on its success, and ultimately the share price of Tesla. A more compact Model 3 could end up being significantly more expensive than the base unit, and will possibly ultimately attract a price point similar to the existing Model S.

Another interesting report this week is indicative of the extent that Tesla is attempting to appeal to the younger generation. Automobile reported on the smallest sedan that Tesla has ever made, one very much aimed at children. A mini-sized Tesla Model S vehicle intended for children to play with, is powered by lithium-ion batteries as opposed to the traditional acid-based cells. This sets a green example for parents, and can also be reassuring considering the obvious problems associated with traditional batteries.

If Tesla is to be a success, it must convert long-term auto buyers into fans of the ethos of the company, also delivering a Model 3 that appeals to both the conscientious motorist and the fashion-conscious individual. This is a big challenge for the company, but at least it can claim to be on course to release this vehicle on time.

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14 COMMENTS

  1. Now why on earth would you say that? What basis do you have for you statement?

    There is pent up demand for the Tesla Model III that is currently immeasurable but will be at the end of this month. Tesla need only capture a small portion of Toyota buyers, Honda buyers, Ford buyers, Chevy buyers, etc. near the $35,000 price point to deal some serious hurt on the ICE industry. They could completely eliminate any growth next year in plenty of car manufacturers’ portfolios.

  2. If BMW can build the 320i and 328i and sell them for a profit at $33,150 and $38,350, Mercedes can sell the CLA and C-class for $32,050 and $38,950, and Audi can sell the A3 and A4 for $30,900 and $37,300 respectively, surely Tesla can sell a Model III for $35,000 + D&H with a small profit. Almost no one is going to buy that base model though. Options like colored paint, leather, wood, Supercharging, and tech package will drive the average cost well past $40K with many opting for the version with the larger battery pack and some for the performance model. Every single entry level luxury vehicle has an average selling price near or over $40K because by spending a little bit more, you get a lot better car.

    Tesla is not targeting the likes of GM, Nissan, and the rest with the Model III. They’re not making a family sedan like a Toyota Camry. It’s going to be an entry level luxury/sport sedan competing against similar vehicles that also cost around $35K. However, what I am saying is that the Model III will steal sales from a host of other vehicles not in its car segment but still in or near its price bracket. The Tesla Model S took a huge chunk of sales in the large premium vehicle segment and stole sales from all over the car spectrum. With its lower price, the Model III will be more effective at doing the exact same thing.

  3. Basic problem is not stealing buyers from other car manufacturers, but Tesla being able to manufacture and sell $35K (before any tax credits) competitively against likes of GM, Nissan, and many other manufactures who have much bigger scale of operation to drive down the cost.. Nissan sold over 5 million cars in 2013, and Toyota sold over 10 million. Economy of scale just isn’t there for boutique car manufacturer like Tesla to drive down cost. Tesla will be more successful concentrating on luxury car segment for rich and well heeled folks, and leave Mass market EV to true first movers in mass market EV like GM (EV1-1996) and Nissan (Leaf -2010)

  4. “In particular, it is suggested that a smaller version of the Model 3 could have a massive influence on its success, and ultimately the share price of Tesla. A more compact Model 3 could end up being significantly more expensive than the base unit, and will possibly ultimately attract a price point similar to the existing Model S.” This paragraph makes little sense.

    That said, the Model III will be attracting sales from the 80% of people who never have bought new cars. Also, there are a TON of vehicles around the the $35K price mark, The Model III will steal sales from the likes of the Chevy Impala, Chevy Volt, Toyota Avalon, Hyundai Azera, Ford Taurus, Chrysler 300, Dodge Charger, Lincoln MKZ, Honda Accord, Ford Fusion, Chevy Malibu, Mazda 6, Toyota Camry, VW Passat, Subaru Impreza, Chrysler 200, Hyundai Sonata, Kia Optima, and all the Hybrid and PHEV models of previously mentioned vehicles in addition to its direct competitors like the BMW 2, 3, 4-series, Mercedes CLA and C-class, Audi A3 and A4, Jaguar XE, Lexus IS, ES, Cadillac ATS, Acura ILX, TLX, Volvo S60, Infiniti Q50, Buick Regal, LaCrosse, and whatever else I forgot.

    I’m sure that Tesla Motors can steal 500,000 sales from a pool that large especially if just a small portion of those who always buy used vehicles make an exception for the Model III.

  5. That remains to be seen. Tesla has already had a handful of locations where the superchargers were overwhelmed. For the most part, they are very underutilized. That has to be taken in context because the ones that were overwhelmed were on routes that affected far more people, and it meant that the percentage of customers who were affected by it was higher than the percentage of superchargers that were overwhelmed.

    Tesla responded by building more superchargers. In the future they will have to plan better and get that done before things get to the point that people have to wait to charge.

    One of the biggest advantages of having an EV is never having to go anywhere to refuel. For typical owners, it means plugging in each night and starting the day with a range of many times what that person would use for the day. A person who drives 40 miles per day (US average) is going to be fine with up to 260 miles of range on a car that starts each day with about 230 miles of range with a 90% charge. Superchargers would get used for long trips, which for most people would come down to a few times a year at most.

    Where the problem comes in here is that not everybody has a garage or a parking space with an outlet. Over time that will change, but for now people who live in apartments and condos will be less likely to be able to charge at home. With a car in the $25K range after tax incentives, it’s more likely to attract a broad range of buyers including those who don’t have garages.

    It means that there will be a short term concern until infrastructure changes. There’s no way we could have 100 million EVs on the road without condos and apartments and public garages installing outlets to support them. But it will also be a long time before Tesla can get there. For now, the demand among people who can accommodate such a car is high enough that it won’t be an issue. Projected sales with Tesla’s most optimistic numbers can happen among those who can support such a car without relying on superchargers for the most part.

    Having to rely on superchargers defeats a primary advantage of EV ownership unless a person works across the street from a supercharger, lives down the block from one, or regularly shops or dines in an area with one. But it’s a matter of priorities. Some people might like the fact that they can go to the local shopping center, plug in for half an hour about once a week, and spend the time dining while charging for free instead of spending the money on gas. Others might not like the inconvenience. For those who do, it means spending no money on gas and no money charging at home. For somebody who spends $2K/year on gasoline, paying $25K for a car after tax incentives and keeping it for a decade might seem like a no brainer.

  6. This has nothing to do with defective cars. It has to do with comparing it to other cars, recognizing how many have much higher defect rates, and recognizing what a pain it is to deal with most manufacturers. I’d rather have a car with fewer headaches. We aren’t talking about cars that are falling apart or ones that have a problem with vehicles constantly breaking down. Consumer Reports tested a car and had an issue with noise in the drive train, and with a door handle. Tesla fixed it. I’ve had issues with other vehicles that the dealerships never fixed right or wouldn’t even admit were problems. I want a car that the company stands by, that will do what it takes to fix the problems, and that does the least to inconvenience me.

    It has nothing to do with being a fanatic. It has to do with being objective. An objective person uses the same standards across the board. That means that a similar article about Mercedes would have to say that they have a quality problem if it’s considered important enough to raise as an issue in this article. Otherwise, things are blown out of proportion. You would expect half the cars on the road to have articles written about their quality problems if that’s considered significant enough to warrant mention in this article.

    In real life, the issue is important to the extent that it affects consumer satisfaction. If there are issues that the company takes care of and customers are so satisfied that 97% say that their next car will be from the same company, that’s not something that will hurt sales.

    Calling something a defective car because a customer went in with streaking wiper blades and a sticking switch on the steering wheel and comparing that to another car with only a single problem that the dealership refused to fix and said is considered normal is an easy way to say that one car had twice the problems of the other. But it doesn’t reflect reality. The one that had the problems corrected isn’t the defective car. It’s the one that never worked well in the first place and never will.

  7. Not sure if Tesla really needs to “compete” with anyone?
    There business model seems to be one of
    “if you build it, they will come”.
    It has been mentioned that the Model III will go head to head with the BMW 3&5 series, but even
    If every single BMW 3&5 series owner gets converted to a Model III, how many vehicles is that? Any where near the 500,000 they need?

  8. You never see articles stating the “problem” that Mercedes has with quality issues. Nor do you see it with literally 50% of cars on the road that Consumer Reports rated as having below average repair histories. Consumers Union said that the Tesla Model S was the best car they ever tested despite concerns that repair history might be no better than average, but also recognized that there’s a 97% customer satisfaction rate that beats all other cars.

    Of course nobody wants a car that needs repairs, even if it means that Tesla gives you a loaner that’s even nicer than the car you own, and returns your car to your home for free and picks up the loaner. But I’d rather have that than have to deal with going in for oil changes, which would have meant more frequent maintenance issues handled in a far less convenient manner. It’s not as if the competition is giving away oil changes and loaner cars. They could come to your home and do it for free, but they don’t.

  9. The supercharger is enough to model 3 out ahead of the competition. If at any time it is not enough just some software updates over-the-air programming. The Autopilot …

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