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There is a little more than a week, You're here (NASDAQ: TSLA) attempted to inflate model 3 sales by informing potential customers in the US that they would be eligible for the total federal tax credit of $ 7,500 when they placed an order before the 15th. October. The tax credit for Teslas will increase to $ 3,750 for deliveries. after 1 January 2019.
This tactic does not seem to have been successful, judging by the fact that Model 3 turnaround times have not changed. As a result, Tesla changed course last week, replacing the less expensive model 3 variant sold by a new mid-range model at a slightly lower price. The sudden decision to introduce a new variant of Model 3 suggests that Tesla is struggling to find a viable balance between boosting sales and protecting its profit margin.
The dilemma of Tesla
After announcing Model 3 in early 2016, Tesla has quickly accumulated hundreds of thousands of bookings. The announced starting price of $ 35,000, before government incentives – and significantly less after tax credits – for a vehicle with a range of at least 215 km, was clearly used to meet the accumulated demand for electric vehicles High quality.
However, when the Model 3 went into production in mid-2017, Tesla started with only the rear-drive long-throw battery version, equipped with a top-quality interior package. This raised the starting price (before tax credits) to $ 49,000, with other options that can significantly increase the price.
When Tesla diversified earlier this year, she did it by adding twin models even more expensive. The goal was clearly to increase the gross margin of Model 3. At the moment, at least, Tesla can not cost-effectively build a version of Model 3 at $ 35,000.
The basic version of Model 3 at $ 35,000 will still not be available for several months. Source of the image: Tesla.
Indeed, even with a super-premium mix and rising production, Tesla expects model 3's gross profit to reach about 20 percent in the fourth quarter, a level lower than the previous year. 25% goal.
The problem for Tesla is that there is limited demand for Model 3 at the prices offered so far. The backlog of confirmed orders appears to be diminishing as many US reservation holders are waiting for the cheaper $ 35,000 model to be available.
Try to boost sales
It seems pretty clear that Tesla would not run out of orders if model 3 of $ 35,000 was available right now. But with its current cost structure, such a decision would result in heavy losses. Tesla does not have the financial resources to absorb this type of attack. It needs more orders at higher prices of Model 3.
Tesla probably hoped that the October 15 announcement as the last day for an order with guaranteed delivery by the end of the year would cause a large influx of orders from customers deciding to pay extra for options they did not need instead of risking losing the tax credit.
This week, he tried a different approach. On Thursday, CEO Elon Musk tweeted that Tesla had just marketed a new mid-range model 3 variant at a lower price. The mid-range model 3 has a range of 260 km, compared to 310 km for long-range models and an estimate of at least 215 km for the "standard-range" version that is not yet in production. The starting price is $ 45,000 before the tax credits.
As of Thursday night, the lead time for mid-range model 3 orders was six to 10 weeks, which means buyers would receive their vehicles by the end of the week. ;year. Tesla announces that the starting price would be $ 35,000 in California, after the federal and provincial tax credits.
It looks like another ploy
There is no way to know exactly what Tesla's intentions are, but it seems that the company is trying all the tactics at its disposal to fill its Model 3 backlog for the remainder of 2018 without having to make available the $ 35,000 version that kills margins.
Many US customers waiting for Model 3 at $ 35,000 may not receive their vehicles until the second half of 2019. At that time, the federal tax credit will be only $ 1,875, or $ 5,625. less than the tax credit available today.
The potential loss of tax credits of $ 5,625 was not enough to prompt many reservation holders to order a $ 49,000 long-term model last week. Tesla probably thinks that proposing a $ 45,000 mid-range model will change this calculation. After taking into account the potential difference between available tax credits, the mid-range model currently costs only $ 4,375 more than the basic version of Model 3 at $ 35,000.
Along with the launch of the new model, endowed with $ 45,000, Tesla has removed the rear-drive long-throw battery option from the order page of its Model 3. (Musk says it can still be ordered especially for a week or more.) This means that the cheapest variant, with a range of 310 km, is now a more expensive two-engine option with a starting price of $ 54,000. This means that a rise in the profits of long-term models could offset much of the unfavorable margin associated with the introduction of the moderately priced model 3 of $ 45,000 this quarter.
Tesla will have some leeway in early 2019 with the start of Model 3 shipments outside of North America. It can start with the most expensive versions and most at the margin. But in a short time, it will be necessary to make available the version to 35 000 dollars – or to reduce considerably its objectives of sale. Unless Tesla can significantly improve its cost structure by then, model 3 alone will not be enough to make the company profitable over the long term.
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