The electric car story of the year — nay, the car story of the year — was the Tesla Model 3 taking the industry by storm. Just as we were predicting 3 or 4 years ago, Tesla’s ability to ramp up production of a more affordable, more mass market model is sending chills down other automakers’ spines — or it should be. I’ll revise a famous old quote to explain the ongoing story in a different way:
When they came for the large luxury sedans, I didn’t say anything. When they came for the large luxury SUVs, I didn’t say anything. When they came for the midsize luxury sedans, I didn’t say anything. When they came for my bread & butter gasmobiles, there was no gas driver left to say anything.
As you can see in the next two charts (sales charts for December and for all of 2018), lining up the Tesla Model 3 against all the small & midsize luxury cars on the market is embarrassing … for the gasmobiles. One of these cars doesn’t belong:
In this next chart, note that you can toggle from month to month to see how Tesla Model 3 sales changed throughout the year.
As I’ve done in the past several months, for the next two charts I’ve combined sales of all small & midsize luxury cars for each brand. I do think that’s the better way to compare since Tesla has no small luxury cars on the market and only one in the midsize category. In other words, if you want a small Tesla, you have to settle on the moderately sized Model 3, and if you want a midsized Tesla, you again have just that one option.
The Model 3 still wins — by a wide margin — in December, for the full year, and actually every month since July.
|Car Model||December Sales||Segment Share|
|Tesla Model 3 (est.)||25,570||32%|
|Mercedes C + CLA + CLS + E-Class||13,549||17%|
|BMW 2 + 3 + 4 + 5 Series||10,574||13%|
|Lexus ES + IS + GS + RC||8,506||11%|
|Audi A3 + A4 + A5 + A6||7,477||9%|
|Infiniti Q50 + Q60 + Q70||4,681||6%|
|Acura TLX + RLX||3,047||4%|
|Buick Cascada + Regal + Lacrosse||2,388||3%|
|Volvo 60 + 90||966||1%|
There are a few ways to look at all of the data combined. Let’s consider them.
1. First of all, you can assume that the Tesla Model 3 is just far more competitive — a much more compelling car — than the other small & midsize luxury cars on the market.
That would explain why the Model 3 has been walloping the competition ever since Tesla got production up to a high level, and even for the full year despite not having high levels of production for much of the year.
2. Another possibility is that Tesla had years worth of demand all built up and delivered in one year. In other words, this argument assumes that Tesla has fulfilled basically all demand for the Model 3 for another year or two — or something like that.
One problem with this thesis is that ~75% of sales in the 4th quarter were not reservations. These were not the buyers who put down $1,000 in 2016 or 2017 to reserve a car for early order. That implies that the massive Q4 demand was not just pent-up demand for the car.
3. Yet another possibility is that Model 3 sales were so large because the $7,500 US federal tax credit for EVs would be cut in half on January 1, 2019, for Tesla buyers.
While this surely contributed to some of the 2018 deliveries, I’d postulate that the vast majority of potential Model 3 buyers don’t even know about the tax credit, and don’t even know about the car yet. Even rather well informed, educated people I know appear to know almost nothing about electric vehicles and the Model 3 in particular before I talk to them — and maybe even after I talk to them. 😉
The phasing out tax credit may have stimulated many sales in 2018, but I assume it will again stimulate many sales in 2019 as many more people learn about it and the car. Furthermore, Tesla has already dropped prices by $2,000 to help account for the credit phaseout, and it will continue to offer lower priced versions of the Model 3 in coming quarters.
One matter not highlighted in all of the above scenarios is what role word-of-mouth sales and seeing the car on the road will do for demand going forward. With ~140,000 Model 3s on US roads today, a humongous new portion of the population will all of a sudden learn about the car and be inspired to buy it. I think that Tesla bears are underestimating how much influence that exposure will have.
At the end of the story is the point that the Tesla Model 3 is the safest car on the US car market — by far — and the next two cars behind it are also Teslas — the Model S at #2 and Model X at #3. It is also the quickest car in its price range and has the most advanced tech of practically any car on the market. Furthermore, low total cost of ownership makes it financially competitive with much lower-quality models, like the highly popular Toyota Camry and Honda Accord.
What explains the Tesla Model 3’s super high sales explosion in 2018? No one knows the exact formula that led to ~140,000 sales in those 12 months, but we know there are still numerous reasons for millions of consumers to fall in love with the car and put one in their garage or parking space.
Oh yeah, and the $35,000 base Model 3 isn’t even on the market yet and there’s no option to lease a Model 3! Introducing both of those options will open up the Model 3 to many more buyers.
If you would like to buy a Tesla and want the benefits that come with a referral, feel free to use my referral code — http://ts.la/tomasz7234 — or not.
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