Why Tesla’s $35,000 Model 3 remains an endangered species
The cheapest version of the Model 3 has become part marketing ploy, part afterthought for Tesla.
Tesla wants to fulfill CEO Elon Musk’s long-running promise of a $35,000 car, which he first promised in 2013. It will deliver the first $35,000 version of its Model 3 this weekend. But Tesla doesn’t intend to sell many of that version.
Six times as many buyers are willing to upgrade their Model 3s than buy the base version, Tesla says. If customers pay $4,500 more than the lowest sticker price, they’ll get autopilot features, a slightly longer range on a single charge, as well as some creature comforts, like seat warmers.
Tesla announced Thursday that it would no longer sell the $35,000 version online. Every other Tesla can be purchased that way. Customers who want a Tesla at rock bottom price will have to order it by phone or go into a service center or one of its shrinking number of stores.
That means many Tesla customers may not even be aware that a $35,000 version is available.
“They’re still offering it for the PR value of saying they have a $35,000 car,” said Kelsey Mays, senior consumer affairs editor of Cars.com. “It is a little bait and switch, but it’s certainly not unprecedented for an automaker to do that.”
A $35,000 Tesla has become the latest of Musk’s grand promises that the company has struggled to meet.
When Musk announced in February that Tesla would finally start making a $35,000 version of the Model 3, he also warned that the company would probably lose money in the first quarter (Tesla will report results on April 24). It demonstrates the difficulty of making money while selling cutting-edge cars at mass-market prices.
“I would guess that Elon Musk saw a point in time years ago where he could sell a $35,000 car and make money on it,” said Karl Brauer, executive publisher at Cox Automotive. “So he committed to that number. Now they can technically say they have done it. But they realize it’s not a good business model. They’re probably losing money on each $35,000 car.”
Tesla has not commented on the profitability of its different models, But it will make more money on what it calls the Standard Plus, which will start at $39,500.
That’s because the $35,000 Model 3 Standard and Standard Plus are essentially the same car. Tesla downgrades the abilities of the Model 3 Standard version, limiting the miles it can travel on a single charge, blocking some autopilot features and preventing drivers from turning on the seat warmers.
“Making different versions of the same car costs money because it slows down production,” said Brauer. “So they’ve crunched the numbers and decided it’s better to make the same car for both the $35,000 version and the $39,500 version.”
The more expensive version is still a mass market car. The average transaction price of a new car purchase in the United States is just less than $36,000 according to Kelley Blue Book.
“You can buy a Ford F-150 or a Honda Pilot for far more than $40,000, and they’re not luxury models,” said Brauer.
The fact that Tesla is essentially selling the Model 3 with a $39,500 starting price, by making it more difficult to buy one at the long-promised $35,000 price, probably won’t hurt the company in the eyes of its customers.
“Tesla shoppers are not bargain hunters. They’re early adopters of technology. And they’re buying a brand with a premium reputation,” said Mays.