Will a $35,000 Model 3 reverse or accelerate Tesla’s fortunes?

1 Mar 2019321 Views

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The long-promised, lower-priced Tesla Model 3 has arrived. But will it rev up the electric carmaker’s finances or bring it down a different road?

If you’ve been following the Tesla story over the past few years, and notably the Elon Musk circus, the shine has gone off the company a little with its reputation tarnished by SEC probes and fines, ill-judged tweets, production problems, a game of executive musical chairs, layoffs – you name it.

But when you spot a Tesla in the wild, you really do notice it. And deep down, admit it, you want one.

‘To achieve these prices while remaining financially sustainable, Tesla is shifting sales worldwide to online only’
– TESLA

So, when the company announced that it had released a pared-down version of its Model 3 saloon, as promised, for $35,000 (€30,790), heads surely turned again. Could it be a gambit that will make the car more mainstream? Only if Tesla can keep up with demand.

The new standard Model 3 will have 220 miles (354km) of range, a top speed of 130mph (209.2kph) and can accelerate from zero to 60mph (96kph) in 5.6 seconds.

Another version, the Model 3 Standard Range Plus, which costs $37,000 (€32,522), offers 240 miles (386km) of range, a top speed of 140mph (225.3kmh) and zero to 60mph (96kph) acceleration in 5.3 seconds.

“To achieve these prices while remaining financially sustainable, Tesla is shifting sales worldwide to online only,” the company said. “You can now buy a Tesla in North America via your phone in about one minute, and that capability will soon be extended worldwide.”

Turning the company into an e-commerce venture could threaten the future of Tesla showrooms that are dotted around the world, including the recently opened store in south Dublin.

“Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6pc on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected. Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centres,” said the company.

Will Tesla’s biggest gamble yet pay off?

The irony of producing a cheaper car is that Musk confirmed the company will have to close stores and lay off workers to make it financially sustainable. He told media in a conference call that the Model 3 is “excruciatingly difficult” to make at the reduced price.

The move to online-only sales and the likelihood of more cost-cutting saw shares in Tesla fall by about 3pc in after-hours trading.

The main concern is whether the company will be able to maintain profit margins as it produces lower-priced vehicles. It’s a gamble, for sure.

Will potential buyers of the higher-priced versions of the Model 3 look instead at the lower-cost model? More crucially, has the company finally got a grip on its manufacturing problems, and if demand is high can it keep up?

The gamble will only pay off if it can ramp up production to meet demand. Otherwise, this could be Tesla’s last big flutter.

Updated, 9.44am, 1 March 2019: This article was updated to clarify that the standard Model 3 can go from zero to 60mph in 5.6 seconds, not 60 seconds.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com