Record Car Sales × Happiest Customers = More Record Tesla Sales To Come

There’s a big question popping around the Tesla-interested interwebs. What is current Model 3 demand? I’ll say up front that I have no clue. There are arguments on both ends of the spectrum.

The lower prices, word of mouth, increasing Tesla awareness, slowly growing production capacity, and shortened delivery times could be stimulating ongoing record sales for Tesla. The fact that Tesla is just introducing the Model 3 beyond North America may well mean that there’s an enormous amount of latent demand out there.

On the other hand, why would Tesla roll out the $35,000 Model 3 if there was still unquenched demand for the higher trims, and why would Tesla feel forced to cut stores and salespeople in order to bring the price down? (By the way, I’ll come back to the topic of the store announcement in another article shortly.) Furthermore, there was pent up demand from years of reservations and there was a rush to buy at the end of 2018 in order to get the full $7,500 tax credit, which may have led to extreme deflation in demand in 2019.

Without a super clear statement from Tesla on how much demand the company is seeing or how many cars are being delivered, I’m withholding any predictions on current, short-term, or even medium-term demand for the Model 3.

All of that said, I think it’s objectively absurd if Model 3 demand isn’t above 500,000 a year. Also, in the long term, I think demand for this vehicle has to be in the 500,000–1,000,000 range.

My assumption regarding long-term demand relates, in part, to what I wrote one week ago — the Tesla Model 3 is as cheap as a Toyota Camry or Honda Accord but 3× better. Additionally, it’s better than basically any other small or midsize premium car while also being cheaper. Certain people will favor different brands or designs, but, objectively, you have a much better car than others at its price — so most people in this vehicle class should buy a Tesla Model 3.

Hundreds of thousands of people buy a Camry each year. Hundred of thousands of others buy the Honda Accord. And hundreds of thousands buy inferior premium-class cars. Many of these buyers could switch to a Model 3.

The current problem with that argument is that people in that segment of the market mostly don’t know about the Model 3, don’t realize how cheap it is, and don’t realize how good it is. Over time, many of them will get educated about the Model 3 and even experience the car via a neighbor, family member, friend, or coworker. Perhaps the Model 3 doesn’t convert everyone at first sight, but it should pull in buyers who prioritize safety, tech, acceleration, design, customer satisfaction, resale values, total cost of ownership, and the overall fun factor.

Over time, the Model S and Model X saw their demand grow — despite what critics/bears tried to claim all along the way. But they’re in pretty exclusive price classes. The Model 3 is in a much more affordable price class that opens up the possibility of purchase to many more buyers — most people just don’t yet realize how competitive the pricing has become.

Another point is that the Model 3 has seen record sales for a car in its price range and almost climbed onto the podium of the three highest selling cars in the USA at the end of 2018. If you combine those record sales with second-to-none owner satisfaction, it’s easy to see the eventual results without breaking out the calculus books. Hundreds of thousands of super happy owners are going to sell more cars to countless new customers (first followers). The long-term (if not medium-term) situation appears obvious: Tesla is going to have boatloads of demand for the Model 3.

My hunch is that the Model 3 will become the top selling sedan in the world. That said, I understand that would be a massive achievement given its still relatively high base price, and thus a risky bet, but it just makes so much sense. As I wrote months ago, the Model 3 is in a class of its own. That’s more true today than ever before. (Of course, with prices rising again next week on all but the base Model 3, and the tax credit taking a step down again in July, now is the time to jump on the best value option if you’re on the line — and that would be the $37,000 Model 3, in my opinion.)