Can The Model 3 Boost The Ailing Tesla Share Price?

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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.

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.

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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