Navigant Research Blog

Tesla’s Affordable EV Finally Sees the Light of Day

Sam Abuelsamid — April 1, 2016

EV RefuelingWho would have thought that a small, roofless, two-seat, self-propelled machine could inspire a revolution in the way humans move about? Strangely enough, it has happened twice now, first in 1886 when Karl Benz drove his Patent-Motorwagen for the first time, and again at the dawn of the 21st century when AC Propulsion founder Tom Gage built the tzero. In each case, the revolution wasn’t instant. It took 22 years before Henry Ford’s Model T moved the car from wealthy early adopters to the masses—the electric vehicle (EV) will need a similar timeframe to make a real dent in the marketplace. Tesla Motors hopes its freshly revealed Model 3 will be the Model T for a new century, but will it succeed?

Founded in 2003 after Martin Eberhard and Elon Musk drove the tzero but failed to convince Gage to put it in production, Tesla had a plan to change the world with electrons. The Tesla Roadster used a Lotus chassis as the starting point for an electric sports car inspired by the tzero. Tesla steadily increased its volume and revenue to fund subsequent more practical and affordable models. Despite failing to meet its self-imposed deadlines, the company has largely stuck to the plan, going from Roadster to Model S to Model X.

Increasing Production

Having successfully increased production by more than an order of magnitude from the Roadster to the Model S, Tesla now hopes to repeat that trend with the Model 3. To that end, the new model is priced starting at just $35,000 before tax incentives, which brings the brand into an entirely different marketplace. Where the Model S and X take on high-end models from Audi, BMW, and Mercedes-Benz, the Model 3 is priced almost directly opposite the Chevrolet Bolt, a 200-mile EV to be priced at about $37,000 when it goes on sale in late 2016.

Tesla Model 3

Tesla Model 3 Unveil

(Source: Tesla Motors)

Unfortunately, while Tesla was the first to market with battery EVs that could easily exceed 200 miles on a charge, this time around, Chevrolet has a head start of at least a year. When I first interviewed Martin Eberhard in 2007, the goal was to have an affordable mass-market EV in the 2012-13 timeframe. As Tesla now knows, building cars is a lot harder than building software, and the Model 3 is scheduled for a late 2017 launch. A base Model 3 may cost as little as $25,000 after federal and state tax credits. However, at its current sales pace, any further delay means that Tesla is likely to hit 200,000 total sales by mid-2018, triggering a phaseout of the federal incentives and raising the net price.

A Tougher Marketplace

In addition to the challenge presented by the Bolt, with gas prices under $2 per gallon, the Model 3 also faces a much tougher marketplace for fuel-efficient cars. New EVs must attract customers on their own performance, design, and reliability merits. Tesla has proven it can compete on the first two, but reliability remains an open question, especially as production volumes climb. Finally, there is the question of profitability, something Tesla has failed to achieve to this point. Without highly profitable gas-fueled trucks and SUVs, Tesla is at a disadvantage.

As we approach the 20-year mark from the birth of the tzero, Navigant Research’s Electric Vehicles Market Forecasts report projects sales of nearly 2.9 million plug-in vehicles globally by 2024. The zero emissions revolution is almost upon us—Tesla has certainly worked hard to bring the transformation to the world, but whether the timing works in favor of the Model 3 or the Bolt to be the new Model T remains to be seen.

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