Tesla calls the Model 3, which the company revealed last week, “our most affordable car yet.” At a starting price of $35,000, they’re not wrong, but affordability is relative. In their eagerness to see Elon Musk’s electric car empire overthrow the old, traditional combustion engine, Tesla supporters might overlook how the Model 3 makes the auto market more uncomfortable for those who can’t already afford whatever they want anyway.
Tesla’s flagship Model S sedan starts at $70,000, and runs well above $100,000 when fully loaded. According to Kelly Blue Book, the average price of a car in America last year was $33,543, a 3.4 percent increase from 2014. By that measure alone, the Model 3 is competitive. And given the fact that, according to KBB, 80 percent of new-car buyers reported looking at an electric vehicle when in the market for a new car, it bodes well for the future of the electric segment.
Not that Tesla needs any predictions. Less than a week after opening reservations for the Model 3, Musk reported that Tesla had received 276,000 orders. At $1,000 per reservation, those pre-orders will easily reach $300 million in immediate revenue to Tesla and $10 billion in hypothetical future revenue. (Hypothetical because the reservation terms and conditions allow customers to cancel their order at any time, in which case the company will issue a full refund.)
Meanwhile, many hundreds of thousands of vehicles is a lot to produce, even for a more established manufacturer than Tesla. The Toyota Camry was the most popular car in America last year, with 429,355 vehicles sold, followed by the Toyota Corolla at 363,332 and the Honda Accord with 355,557. For its part, Tesla delivered 25,202 Model S cars in the U.S. during that same period. To put that figure in context, it’s about the same number of Lexus GX460 full-size SUVs or Fiat 500 hatchbacks that were sold last year. All of which is to say: For the Model S to reach Camry or Accord-levels of popularity, Tesla would have to ramp up its production capacity quickly and substantially to start delivering by its late-2017, as the company has promised. In all likelihood, many Model 3 reservation customers will wait longer than two years for their vehicles.