Tesla Confirms Model 3 Will Be First Mass Market Electric Vehicle

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Many milestones have been laid out for electric vehicles and we have celebrated them all. Let’s hit 100,000 electric vehicles sold, 500k, 1 million electric vehicles. Market share is another favorite, as well as breakouts by manufacturer. Who has sold the most EVs? Who sold the most last year? Who will sell the most this year or next year?

Those are all fun for enthusiasts to watch as we witness electric vehicles going through the bumps and starts of the innovation adoption lifecycle. We are still very much in the very early ‘innovators’ portion of the curve, but Model 3 changes things. Initially, enthusiasts hoped the Chevy Bolt would be the first to crack the ice as the first ‘affordable, long range electric vehicle’ on the market, but sales to date have been disappointing.

Tesla’s Model 3 changes all of that. Tesla brought in an unprecedented 518,000 reservations for Model 3, and even with 63,000 of those being cancelled, that is a game changer. Over 400,000 people have locked in a vote for electric vehicles, and that’s important because of one huge fact – they don’t care that it’s electric. They just want the best car available at the price. This was confirmed by Elon Musk who shared that 80% of the people who rode in the Model 3 would buy one as their personal car. Of the remaining 20%, most said they would consider it.

With Model 3, Tesla is on track to become the first manufacturer to sell over 1,000,000 electric vehicles. From just under 100,000 vehicles sold last year, Tesla is expected to produce more than 200,000 vehicles this year and more than double that in 2018. It has created a vehicle that the masses are clamoring for. Not because it is electric. Not because it is better for the environment, but because it is simply a better vehicle. With Model 3, Tesla becomes the first mainstream automotive company to get rid of the key. Drivers will be able to open the car, get in and drive with just a smartphone. In addition to simplifying the lives of owners, it makes Model 3 the perfect vehicle for an autonomous taxi fleet. A wave of the phone (or rather, having it in proximity of the vehicle) will be enough to confirm one’s identity, process payment, and allow entry.

Beyond niceties and future technologies, Tesla is actively working to build the technological bridge to that future. Elon confirmed in the earnings call yesterday that Tesla was on track to demonstrate a fully autonomous cross country road trip from Los Angeles to New York by the end of 2017 or shortly thereafter.

In typical Tesla fashion, goals are set higher and sooner than is believable, and as such, are very commonly missed. Model 3 is Tesla’s first earnest attempt to course correct, with production and deliveries happening exactly on time last week, though the inevitable ‘production hell’ that Elon talked about at Model 3 launch is an imposing barrier to hitting future Model 3 milestones on time, at cost.

Tesla shared that the company is hoping to exceed a Model 3 production rate of 1,500 per week by the end of Q3 2017 (July-Aug-Sept), hit 5,000 per week in Q4 2017 (Oct-Nov-Dec) and hit 10,000 per week (520,000 per year!) by the end of 2018. When rolled together with around 100,000 Model S and X, Tesla will have a production capacity of 620,000 vehicles by the end of 2018. Compare that to less than 100,000 vehicles total in 2016 and you can see just how fast Tesla is attempting to ratchet up production.

It is easy to say that Chevy or Nissan or even BMW might have plans to move into electric vehicles and will supplant Tesla’s dominance but that simply is not possible for one reason – batteries. Elon shared that the Tesla Gigafactory would have the same production capacity at startup as the rest of the world combined. Said another way, Tesla producing its electric vehicles and energy products from Gigafactory will require as many batteries (of any type) as the rest of the companies in the entire world combined. Even if another automotive company had an electric vehicle as compelling as Model 3 and was able to stir up the same demand, there simply would not be enough batteries to produce them. On top of that, Tesla building batteries essentially in-house through its partnership with Panasonic at that scale gives it literally the best battery pricing in the world. That scales to a lesser degree as it adds more Gigafactories around the world.

Speaking of Gigafactories, Tesla reiterated on its earnings call that it would announce the specific locations of the next 2 to 4 Gigafactories by the end of the year. It also stated that they would be located near key markets, specifically highlighting China and Europe as key markets that would receive a Gigafactory. In discussing capital expenditures this year, Tesla noted that is already moving forward with identifying land to purchase, permitting and similar low expenditure, long lead time portions of the work meaning that it has likely already identified at least a couple of the locations.

Each incremental Gigafactory that Tesla starts work on represents another massive step it is taking ahead of the competition. As evidenced by the solar Gigafactory outside of Buffalo, New York, not all of the Gigafactories will be solely focused on battery production like the Gigafactory in Sparks, Nevada, though all signs point to a modular factory that will have production capacity for all of Tesla’s products in order to supply an entire region with its products. Battery cells, solar cells, solar panels, solar roof tiles, Powerwalls, Powerpacks, Battery packs, motors and rolling chassis are all on the radar for production at Gigafactories of the future, and that’s just what we know about today. They are going to be like miniature factories combining the ~10,000 employees at the vehicle production factory in Fremont with the 10,000 workers originally planned for the Gigafactory in Nevada plus or minus a few thousand for solar production and who-knows-what Tesla comes up with next.

To put a bow on things and bring it back around to Model 3, Tesla is not only the only company building an electric vehicle with enough demand to sell in the hundreds of thousands per year, it is the only company that had the foresight to build sufficient battery production capacity required to support that scale. That puts Tesla on a completely different level, and Model 3 is leading the charge.

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Kyle Field

I'm a tech geek passionately in search of actionable ways to reduce the negative impact my life has on the planet, save money and reduce stress. Live intentionally, make conscious decisions, love more, act responsibly, play. The more you know, the less you need. As an activist investor, Kyle owns long term holdings in Tesla, Lightning eMotors, Arcimoto, and SolarEdge.

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