Will Tesla Motors’ Model 3 Push EVs Out Of Their Niche?

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Tesla Motors continues to be popular among luxury car and electric vehicles buyers alike, but the Model 3 may not be enough to pull the automaker into the mass market. Tesla bulls have based their cases on the success of the Model 3, among other things, but it may still be too early for EV sales to pick up among mass market car buyers.

EV adoption slower than expected

In a report dated Aug. 11, Barclays analysts explained that EVs are still a very niche product and said they don’t think this will change in the next five years. This is an important point for Tesla because it is planning on putting the less expensive Model 3 into production in 2017, and by 2020, management expects to be selling 500,000 cars a year, thanks in large part to the Model 3.

Model X to help Tesla offer more value?

Of course the main reason drivers are being so slow in adopting EVs is the fact that they are so much more expensive than gas-powered vehicles. It takes a lot of miles for the gas savings on driving an EV to actually start saving a driver money after paying the up-front premium on an EV or even a hybrid. One thing that could be good for Tesla is the release of the Model X, which may present a better value for drivers if it really is priced close to the Model S.

Gas-powered SUVs use a lot more gas, so it should, theoretically, take less time for drivers to see a benefit from gas savings on the Model X because the price premium should be smaller relative to gas-powered SUVs of a similar size. However, this is only the case of the Model X is really priced around the price of the Model S and does not end up being significantly higher than the sedan.

EVs remain premium, niche products

In addition to the higher price, a lack of charging infrastructure is also likely to blame for the slow adoption of EVs. The Barclays analysts further said they think EVs will remain a premium product for now. They pointed out that sluggish sales of the Chevy Volt and the Nissan Leaf demonstrate that the optimism surrounding EVs appears to have arrived a bit early as both cars are running at a loss for their respective automakers.

The success of Tesla’s Model S and BMW’s i3 series demonstrate that luxury car buyers are interested in EVs, however, because they don’t care about saving money on gas. Also they are less worried about the fact that the cost of owning an EV or a hybrid is higher than the cost of owning a gas-powered car, according to Barclays analysts, although tumbling fuel prices are starting to negatively impact EV sales.


As a result, they think EVs will remain a premium product for the next five to seven years, which could mean bad things for Tesla’s Model 3 if they end up being correct. After 2020, they see Tesla and other EV manufacturers as possible benefiting from tighter regulations on gas-powered vehicles, however.

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