Despite the scepticism of some market analysts, Tesla has recently confirmed that its highly anticipated Model 3 vehicle will indeed debut at a price point of $35,000. It is worth pointing out that any additional extras will bump the price up significantly, and that the $35,000 figure absolutely refers to the base Model 3 unit.
Massive tax subsidy
But the fact that the federal government offers a $7,500 tax subsidy to purchasers of the Model 3, means that environmentally friendly car consumers will be able to purchase a Model 3 for $27,500. Additionally, further tax credits in certain states across the United States will ensure that the purchase price of this vehicle is even lower than this already competitive number.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy Read More
This is all fantastic news for potential Tesla consumers, but it is also important for purchasers of the vehicle to understand that the $7,500 tax credit won’t be available in perpetuity. Instead, the law that governs easy tax incentive indicates that the $7,500 tax credit will expire once a particular car manufacturer manages to shift 200,000 eligible vehicles in the United States.
Once this figure has been achieved, the amount that can be claimed by a tax credit diminishes significantly. In the immediate aftermath of the 200,000 unit mark being breached, the tax credit applied to the vehicle will be reduced to $3,750 for six months and then to $1,875 for the next six-month period. However, this reduction doesn’t kick in immediately. IRS regulations state the following:
“The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States…”
What this essentially means is that Tesla consumers will still have at least three months grace once the 200,000th vehicle has been sold. So what Tesla consumers will be extremely keen to know is…when indeed will Tesla pass the 200,000 sales barrier in the United States?
US Tesla figures
In order to answer this question, one must acknowledge an immediate technical difficulty. Tesla doesn’t break down sales figures to individual countries, which complicates matters. However, one keen Tesla analyst, Fred Lambert at Electrek, has been working on the issue, and has calculated some fascinating projections regarding Tesla reaching the 200,000 milestone.
There is no doubt that the United States has been the major marketplace for Tesla, and on this basis Lambert calculates that US-based sales account for around 40 to 50 percent of Tesla’s overall global sales. Taking this as an assumption, Lambert indicates that the 200,000 threshold will be breached at some point during 2018. This obviously indicates that by 2019, Tesla buyers will have minimal federal incentive to purchase cars, and by the start of the next decade, this will have disappeared completely.
What this means for the average Tesla consumer is that those interested in purchasing the Model 3 should get an order in as quickly as possible. Tesla is unveiling the Model 3 on March 31, and at that time pre-orders for the vehicle will also become available. All pre-orders of the Model 3 will require an in-store Tesla reservation, along with a $1,000 deposit placed down.
With Tesla intending to make the Model 3 a mass-market vehicle, it is noticeable that the $1,000 deposit is the smallest that Tesla has ever insisted upon. Thus, it is suggested that the Model 3 pre-orders will significantly outnumber any previous vehicle, and this equally indicates that those wanting to reserve a Model 3 should do so as quickly as possible.
Tesla has yet to announce the official release date of the Model 3, but the consensus among analysts of the motor trade is that deliveries should begin in late 2017. Tesla has gallery and store locations in 26 states and the District of Columbia. Because of dealership franchise laws, the direct sale of Tesla vehicles is outlawed in five states, and this will mean that many Tesla consumers will need to travel in order to guarantee getting their hands on the next generation Model 3.
The Model 3 should appeal to both luxury car fans and those on an affordable budget, with the vehicle intended to appeal to as wide a tranche of people as possible. This is essential for Tesla considering the fact that the company has experienced fluctuating fortunes on the stock exchange in recent months; certainly CEO Elon Musk will want to stabilize things as quickly as possible.
However, the concept of an affordable vehicle from a luxury car brand is hardly a new concept, and Tesla will face considerable market competition. Audi, Mercedes-Benz and BMW already offer vehicles within the $30,000 to $35,000 price range. The 2016 Audi A3 retails for $30,900, the Mercedes CLA Class starts at $32,050 and the BMW 3 series is available at $33,150, and these are precisely the vehicles that Tesla will be forced to compete with.
Generation X appeal
The good news for Tesla is that brand loyalty with vehicles has dissipated almost completely, particularly with the younger generation. Many companies are looking to market to customers at an early age with lower price vehicles, and Tesla can potentially capture a significant amount of the market with the Model 3.
As major brands move into the more affordable end of the market, so some of the companies that have traditionally flourished in this space have begun to struggle. It is certain that the Model 3 will further increase the competition in this sector, and force traditional luxury brands to innovate further in order to remain ahead of the competition. This is particularly true considering the tax incentive offered for Tesla vehicles, and the company also has a fashion cachet among young people related to its green credentials.
The Model 3 undoubtedly has massive potential, combining an aspirational quality with an affordable price point. When one throws into the mix the fact that considerable tax incentives are also available, this really could become the mass-market vehicle that thrusts Tesla into the forefront of the auto industry. And the company that has lost around 40 percent of its value in the last three months alone will certainly hope that this is the case.