Nothing’s Static: Significant Cost Drops Brought Us Tesla Model 3 — What Will Continued Cost Drops Mean For Tesla?
Humans are funny creatures. We think of our species as being extremely smart, but in actuality we are really quite bad at logical thinking. We even have inherent difficulty genuinely comprehending and acting on some well known facts of life.
As an example of our limited comprehension skills, Elon Musk recently noted that we can’t really see exponential growth in action. We can understand it theoretically of course, but we can’t observe it in action and clearly notice the trend. More simply, or at the core of that, I think it’s extremely difficult for us to think beyond today or tomorrow. We can plan for retirement or for big changes coming in the next few years, but we can’t really prepare our minds for them. I think anyone who’s had a baby can understand this point well — all the preparation in the world doesn’t make it a completely smooth transformation of your lifestyle, thoughts, and priorities. It takes some time to adjust your base perception of the world, to change your identity to match a new life.
That intro is to set the stage for a critical point that I think we mostly don’t comprehend. Electric vehicle tech progress and autonomous vehicle tech progress from year to year, month to month, and even day to day is dramatic, yet it’s something we can’t viscerally witness. The rapid progress is just a vague abstraction that some of us believe in (or I’d say “get”) and others don’t. We see the results of recent improvements in the cars and tech available to us today. However, I think it’s very hard for us to deeply consider what tech will be available in one year, two years, or five years — or how much it will outcompete the old-tech competition (gas and diesel cars). As a retrospective example, who comprehended at a core level five years ago what the Tesla Model 3 would be able to do today as far as highway Autopilot (Navigate on Autopilot), Smart Summon, Netflix & YouTube, Beach Buggy, etc? Who comprehended it a year ago? Before you say that you did, consider whether you got very enthusiastic about the features once they arrived. If you got very enthusiastic about them once they arrived because they were so “mind blowing,” that indicates you weren’t really deeply or viscerally ready for them. If this was all comprehensively comprehended, the arrival of these abilities would not seem so mind blowing to us.
With that in mind, let’s try to understand what we can’t understand. At the moment, objectively, the Tesla Model 3 easily beats its luxury car competition in terms of performance, safety, total cost of ownership (by far), usable space, and (of course) infotainment. The vehicle came a handful of years after the Model S soundly outperformed large luxury cars in the same ways. The base of these vehicles is their batteries. It was specifically Tesla’s incessant focus on lowering battery costs and scaling up production that enabled the lower cost Model 3 and also helped Tesla to pack more and more features into all of its models without raising prices. It’s why the Model 3 is able to be the #1 best selling vehicle in Norway and the Netherlands this year, why it’s able to be the 9th best selling car in the United States, and the only premium-class car in the top 15. This is all old news. However, the point is, what will happen in the coming years as the tech evolution that enabled the Model S and then the Model 3 keeps going?
First of all, the Tesla Model Y crossover is next to disrupt the established order in its respective market. In the crossover market, it will outcompete everything else out there, most blatantly other premium-class and performance crossovers, since it will be quicker, safer, have better autonomous tech, have better infotainment, and be cooler. Then there’s Tesla’s pickup truck and semi truck.
However, also remember that the tech underneath the Model 3 won’t be static. It’ll keep improving and costs should keep coming down, which means Tesla could continue rolling more and more capabilities and features into this mass-market car that is already far atop its class and even outcompeting vehicles in higher-volume classes. The Model 3 is not going to simply remain as tremendously competitive as it is today — it’s going to keep getting better while the “competition” more or less stagnates (since the internal combustion engine is old tech that doesn’t have much room to improve). In 5 years, the BMW 3 Series and Mercedes C300 won’t be competing with the Model 3 of today — they’ll be competing with a much improved Model 3.
The ongoing evolution of the tech should also enable a lower cost, more mass market Tesla in a handful of years, a “Model 2” or “Model A,” some of us have been inclined to call it. Perhaps with a starting price of $25,000 or $30,000, it could make buying a gas car in that price range absolutely imbecilic, offering much better performance and features as well as a lower cost of operation (lower fuel and maintenance costs). Where is the market at that point? How many more people will understand the benefits of a Model 3 or Model Y and be ready to buy one? How many people will be in the market for a lower priced Model 2/A?
Honestly, consider for a moment the competitiveness of a Tesla Model 3 today, how much better than the competition it will be in 3–5 years, and how many more people will know about the car and its benefits. Pause and consider for a moment what 5 more years of development could lead to in terms of a cheaper Tesla model.
All of that would paint a stunning picture if we were only looking at the powertrain, but on top of the electric revolution is the autonomous revolution. Tesla vehicles have gone from an event 5 years ago in which demo cars were changing lanes and stopping in response to cars in front of them, to a situation today in which they can basically drive from highway on-ramp to off-ramp by themselves, passing slower cars along the way, and can navigate a parking lot on their own to pick up or drop off a passenger. Yes, these tasks still require human supervision, but from my experience with them, if the cars were set free and allowed to perform the tasks without human interference, they’d do so smoothly and safely. Tesla is supposed to enable the ability to stop at stop signs and red lights in a couple of weeks. At that point, Tesla vehicles will be able to do practically all driving, mostly just “failing” (or telling the driver to take over) out of extreme caution, not because of an inability to actually perform the task if it tried.
That’s looking backward from 2014 to today. What will come in terms of autonomous driving abilities in the next 5 years, and how will that change the market?
When you combine the ongoing cost drops in vehicle battery technology, the features that will be added in the coming years, performance improvements, and improvements in Tesla’s autonomous driving systems, you end up with Tesla vehicles that are increasingly pulling away from their competition in the premium classes they belong in as well as more mainstream vehicle classes.
With all of that taken into account, it’s very hard for me to see how Tesla wouldn’t take a larger and larger portion of the auto market in the US and globally. The Model 3 was considered impossible by many, but Tesla brought it to market. Many auto analysts expected the Model 3 to have a moderate sales limit since it’s a premium-class car, but it is selling far beyond any other premium-class car. The autonomous driving features the Model 3 has now were considered to be many years away not long ago. But this is not the end of the line. How much more can the tech improve in the next 1–5 years?
Side note: If Tesla cuts costs while keeping prices the same, that means better profit margins, which means more money that can be invested in quicker growth and more transformative projects.
If you’d like to buy a Tesla Model 3 and want 1,000 miles of free Supercharging, feel free to use my referral code: https://ts.la/zachary63404 — or use someone else’s if you have a friend or family member with a Tesla. I won’t cry.
Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.
Latest CleanTechnica.TV Video
CleanTechnica uses affiliate links. See our policy here.
