Published on March 1st, 2019 | by Zachary Shahan0
What Does $24,500 To $37,000 Tesla Model 3 Mean For The US Auto Market?
March 1st, 2019 by Zachary Shahan
The $35,000 Tesla Model 3 is here. Finally! The car may have been delayed, but it’s as groundbreaking as it would have been a year or two ago, and it’s well ahead of any comparable vehicles from other automakers. I’ll get to detailed comparisons in another article, but the Model 3 is basically quicker, safer, has higher tech, and is cooler than anything even $10,000–20,000 near it in price.
But this is the crazy thing: the new $35,000–37,000 Model 3 options are genuinely dipping into mass-market territory, even before incentives — and there are incentives. The low price of $24,500 in the headline isn’t actually the lowest price after incentives. It’s the base price in California after the state EV rebate and the currently available $3,750 US EV tax credit and estimated gas savings. In Colorado, you can chop off another $2,500 since the max state tax credit for an EV there is $5,000. That would put the base price — with estimated gas savings — at just $22,000. Nonetheless, I used the California figure in the headline, since it is a huge major market and Colorado isn’t. More Teslas are sold in California than anywhere else. [Update: This paragraph and the title have been updated to include estimated gasoline savings.]
But let’s get to the rest of the title. What does this new low price mean for the US auto market?
We’ve been reporting for a while that Honda and Toyota seem to already be getting hit by fuel efficient, green, techie buyers moving over to Tesla. Honda Civic sales have been down, Accord sales have been down, and Honda crossover/SUV/truck sales are not at all making up for the drop — those models still saw a net ~55,000 unit drop in 2018, some of which had to have been caused by Tesla (~140,000 sales don’t come from nowhere).
But all of that happened while the Model 3 was still considerably more expensive. That happened before the upfront price of a Model 3 was really dipping into the Accord and Camry range, when it was still $44,000+ at the register. Yes, the base prices of these Honda and Toyota cars are a bit under $24,000, but 1) selling prices are typically much higher and 2) that’s close to the price of a Model 3 in California or Colorado anyway. And, again, the Model 3 is a devastatingly better vehicle.
In 2019, we have just one month of US auto sales to go on. That month saw a drop in overall sales from Toyota, Honda, Nissan, Mercedes, VW, BMW, Lexus, Infiniti, & Audi, while Ford & GM (including Chevrolet, Lincoln, Buick, and Cadillac) did not report sales figures. Only a few brands saw their automobile sales rise.
There are various explanations that must help to illuminate that large sales drop, but a brand new mass-market vehicle has to be part of the equation. More importantly, though, going forward, you have to have a few brain cells loose or just not understand what Tesla is offering to buy a $34,700 Toyota Camry XSE V6 instead of a Tesla Model 3. Similar for a $34,990 Honda Accord Touring or $30,120 Honda Accord EX-L. Not to mention less popular models! Not much stretching is required at this point to go Tesla.
I just had to rent a Hyundai Elantra for a few days. It is like an old, super slow, rough, low-quality machine from a century ago after being used to driving electric. I can’t see why anyone would buy this car now that the base Model 3 is on the market. Yet more than 200,000 of them were sold in the US last year.
I think Tesla’s big challenge is basically still awareness. Most people are not keen to jump in and buy new tech unless someone they know has it or they serendipitously happened to experience it on their own. If you’ve experience a Camry, Accord, Elantra, and Model 3, you essentially have to choose a Model 3 — it’s approximately 3× as good for a similar price. But most people don’t know someone with a Tesla and haven’t stepped foot in one. If they’ve noticed the Model 3 on the road or in a parking lot, they probably thought it looked exotically expensive. Or the consumer just doesn’t know about charging, how easy it is, and how little there is to worry about the new tech. (Actually, they should be worrying about the old tech.)
But let’s say awareness starts to penetrate the US population much more in the coming months. Aside from the Model 3, the other 19 of the top 20 cars in the US scored nearly 2 million sales last year. By and large, it would make senses for those buyers to slide into a Model 3 for their next purchase. Then you also have another ~600,000 competitors in the small & midsize luxury car market. Yet again, it makes little objective sense to choose a “luxury” gasmobile over a Model 3. With full knowledge and experience, most of those buyers should be moving to a Model 3. The Tesla wins on nearly every metric and feature.
I’m not saying people won’t keep buying these other models. They will. Through inertia and lack of awareness, these old models will see their sales continue. However, from a market of ~2½ million sales in which the Model 3 is highly competitive, Tesla will be snipping off customers. Awareness will grow. Word of mouth will multiply sales demand. As I’ve pointed out before many, many times, there’s an inflection point somewhere around the current market penetration where demand explodes. As Maarten recently explained, there’s also an Osborne effect to consider. Even if people don’t realize now is a great time to buy a Model 3, they may be putting off any purchase until they feel comfortable jumping into the electric transition. Either way, large automakers are going to see demand for their gasoline vehicles dropping.
In my opinion, by the end of the year, major carmakers won’t just be seeing a dent in consumer demand due to the Model 3 — they will see that demand collapsing. How long does it take before one person in the average family can convince another member about to buy a new car that they can get much more value for the money with a Tesla? This is the big question.
$35,000 is here. Chapter 3 begins. It’s going to be a bloody one.
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