Published on June 11th, 2018 | by Carolyn Fortuna0
Does It Really Matter If Tesla Has Refunded Nearly 25% Of US Model 3 Pre-Orders?
June 11th, 2018 by Carolyn Fortuna
We were all so excited when Tesla starting accepting Model 3 pre-orders following the car’s unveiling in March 2016. A week later, Tesla issued a blog post: “We’ve now received more than 325,000 reservations, which corresponds to about $14 billion in implied future sales, making this the single biggest one-week launch of any product ever.” The amount of interest in Tesla’s first truly affordable car was substantial — and still is. And let’s remember that each original Model 3 pre-order required a $1,000 deposit.
Lately, however, it seems that a chunk of those Model 3 owner-wannabees have lost interest or have been unable to justify getting the car and have thus requested that Tesla return their deposits. Should we care? Does this shift in Model 3 interest signal any downward trends for future sales of the mass-market Tesla sedan?
Probably not. Sure, in April 2018, the analytics firm Second Measure reported that 23% of those who had placed Model 3 pre-orders in the US had their $1,000 deposit refunded. (Note: Engadget reported that Tesla refutes that percentage; we reached out to Tesla to get a comment but haven’t heard back yet at this writing.) Nonetheless, with Tesla Model 3 production rates on the rise after another production line robotics retooling in May, Tesla’s prediction of 5,000 vehicles per week seems to be confidence-inspiring for the remaining Model 3 pre-orders.
Why the Model 3 Appeal Will Continue to Draw Lots of New Buyers
With 5% more people than last year in the US saying that their next car will be an EV, it makes sense that the Tesla Model 3 is at the top of potential new EV owners’ lists. In the same way that the automobile symbolized the identity of US 20th century drivers, Tesla represents the pinnacle of what it means to own an EV. It has panache when so many other EVs seem, well, like novelties to many US drivers.
The Tesla brand implies wealth and status. The company was quite explicit in its 2015 marketing plan: “Tesla is targeting individuals who are upper middle-class baby boomers with typical incomes of over $100,00.” The Model 3, with price range anywhere from the basic $35,000 starter to a performance model for $78,000, doesn’t demand the cost of the Model S or X, but having the Tesla logo on a vehicle confers a certain prestige even if you’re not quite in the 2015 Tesla socioeconomic target audience. As Forbes indicates, Tesla is a vision of the future, an aspirational brand notable just as much for its ideals as its product.
Tesla’s driving performance is a rush. Elon Musk said at the unveiling of the Tesla Model 3, “We don’t make slow cars.” The Model S P100D has Ludicrous mode (which seems like a terrestrial version of a SpaceX rocket the first time you experience it), but the Model 3 also pins unsuspecting passengers back in their seats. Even as family cars, the Tesla performance is unrivaled. Tesla’s constant talking points about its driving experience — not to undermine considerations of safety and reliability, of course — reinforce the prevailing perspective that the Model 3 joins others in the Tesla catalog for its certainty of speed, acceleration, handling, and intensity.
People like the Model 3’s technology features. Early reviews from Model 3 customers are quite positive, with the car’s tech features receiving lots of high fives. The Model 3 has a prominent 15-inch touchscreen display that controls many of the car’s interior features. The Model 3 also includes several standard Tesla tech features, like over-the-air updates that constantly improve the car and an Autopilot system with limited autonomous driving capacity. Many investors look at Tesla more as a technology company than as a car manufacturer.
Millenials like the Model 3 — a lot. The Model 3’s appeal to millennials, says Business Insider, is rooted in the company’s ability to create a narrative that includes renewable energy, space exploration, self-driving vehicles, and other developments that could produce wide-ranging benefits for the human race. Millennials tend to lean toward products and services that speak to social betterment, and Tesla’s focus on producing transportation consistent with a sustainable environment appeals to them. Like many people, millennials respond to climate change action when an equation of education, awareness, and convenience is presented as an accessible triumvirate for reducing their carbon footprints.
Tesla stores are pressure-free and empowering. While most car dealerships are populated by salespeople whose commissions prompt them to pounce on customers as they walk through the door, Tesla’s sales staff calmly answers questions and offers insights about EVs, solar panels, and home battery storage. The streamlined store design symbolizes a very appealing clean energy lifestyle, one to which many people aspire. Buying a Model 3 becomes a stress-free, empowering experience.
Possible Reasons for Some Model 3 Pre-Orders Being Withdrawn
Let’s just say it: The baseline Model 3, which starts at $35,000, isn’t going to be produced anytime soon. Elon Musk has been clear from the outset that the higher priced vehicles in the catalog help to stabilize the company and will eventually balance out the lesser gross margins of the lower priced Model 3.
The process to order a Tesla Model 3 begins with committing to the $1,000 deposit. Then, once invited to configure and order, the customer chooses individual design features and adds $2,500 to the original deposit. At that point, deposits are not refundable. Sometimes, Teslas are delivered within a month of that design configuration. That hasn’t been the case for the Model 3.
Lots of basic Model 3 orders are on hold as customers stand ready for their turn to be called for delivery. With Model 3 wait times currently advertised as 4–12 months and the Trump administration’s dismay of anything non-fossil fuel, potential Model 3 buyers may find themselves ineligible for major federal tax credits (up to $7,500 per car).
So, would-be buyers might be cancelling orders because the $35,000 Model 3 is too far away, they concluded they can’t afford a Model 3, or the excitement that led them to put down a $1,000 reservation wore off and they decided to get their money back as they waited. Alternatively, perhaps they are unhappy with the features, reviews, or their experiences with the cars — though, that seems less likely since several features are unmatched by other models in the class and reviews have largely been glowing (though, with some dissent).
Moreover, some original Model 3 reservation holders have opted to purchase a more expensive Tesla, which is good news for both Tesla and others who are waiting in the Model 3 queue.
Second Measure’s data analysis suggests that more than a third of Tesla’s cash holdings are customer deposits, which includes reservations for new Teslas other than the Model 3. If, as the Second Measure claims, Tesla is presently paying out refunds faster than new Model 3 deposits are coming in, that could be unsettling in the short term for investors. In the long term, however, interest in the Tesla brand continues to grow and new reservations have remained level in recent months.
With production numbers at Tesla’s factories increasing dramatically with the addition of Model 3 to the lineup and the expected ramp to full-speed production, the Model 3 pre-orders seem to have a bright future. Second Measure acknowledges that Tesla configurations are also on the rise, nearly tripling month over month among Model 3 reservation holders.
Overall, it can’t be good news for Tesla, Tesla investors, or Tesla supporters if a sizable portion of potential buyers are cancelling their orders, but some of that had to be expected and consumer demand for Tesla’s vehicles — which is still stimulated by very little marketing and no paid advertising — doesn’t seem to be at much risk.