Tesla’s Model 3 is already a game changer: Tech, Value and Economics prevail

[Guest]

Yesterday I spoke to BBC Newsday about the Tesla Model 3 and one of the questions they asked was “is the Tesla Model 3 a game changer”.  Even before incentives the Model 3 competes with other entry level luxury vehicles like the BMW 3 series and Audi A4.  With incentives it moves even further down-market, competing with big sellers like the Toyota Camry (the USA’s top selling car in 2016).  That definitely moves Tesla into the mass market with a lot of opportunity to grow.  There are some additional factors though that I think makes it a true game changer.

Industry Affect

It’s already a game changer.  Just over a year ago most automakers still dismissed Tesla as a niche manufacturer and articles still wrote about how electric vehicles were decades out or may never come to fruition.  Then Telsa had almost 400,000 preorders for a vehicle no one had actually driven, most had only seen through their computer screens, and wouldn’t be available for over a year.  I was one of those people.

Fast forward to today, with manufacturers practically falling over each other to announce their own electric vehicle programs and new targets.  The discussion has flipped. Articles are no longer written about if electric vehicles are coming but how quickly.  I think we have the Tesla Model 3 to thank for that.

Value Proposition

Preorders are one thing, but can the Model 3 compete in a world of mostly combustion vehicles?  That will depend on the value customers assign to it.  My opinion is that Model 3 is the first lower cost electric vehicle to cross the ‘value threshold’.  What I mean by that is that a buyer considering two vehicles in the same class and quality, one electric and one combustion, would chose the Model 3 over the combustion option.  The Model 3 is just the better all-around car.

(Tesla)

Consider the Chevy Bolt, a good car, but a more difficult sell on value proposition.  Does it actually provide $37,500 worth of value to the buyer or could I purchase an internal combustion vehicle that provides me more value (as per classic capitalism this is largely ignoring the societal and environmental benefits to others, which can be difficult for most buyers to quantify – it’s not right, just reality).

“The Model 3 is just the better all-around car”

The factors at play are complex, the initial purchase price, comfort, reliability, range, acceleration and speed, safety, handling, aesthetics, operating costs, convenience, and environmental impact.  These all go into a buyer’s value calculation, mostly subconsciously.  For me I can’t think of another vehicle that hits those categories as well as the Model 3.

Economics and Cost Reductions

Customer value is great but Tesla more than any other automaker needs to produce electric vehicles with a decent profit margin.  It doesn’t have a lot of gas guzzling expensive SUVs to offset losses on EVs.  Other automakers have claimed they are perfectly willing to make EVs at a loss, which seems largely driven by meeting emissions targets in key US states (California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont).  That may also be why GM is pulling back on Bolt production, if they’re approaching their quotas in those states .  In Ontario Canada, which has no such requirements, the Chevy Bolt is sold out until January 2018 and the only one available to test drive is at the non-profit organization Plug’n Drive in Toronto.  A lot has been made in the past of Tesla’s business losses, but those include capital investments and R&D.  They do in fact make a profit on their vehicles, but invest more money on improvements and expansions than that profit totals.  Making an affordable electric vehicle at a profit is a challenge Tesla seems confident they’ve achieved.  That’s a big deal.  A game changer.

Technology Innovation

To be a game changer though the Model 3 can’t just be another lower priced electric vehicle.  It has to be innovative and it is absolutely that.  It will be using a new battery format, autonomous driving hardware, and it’ll likely be using Tesla’s newly optimized powertrain with 1 million miles capability + faster acceleration.

Tesla Model 3 prototype from the March 31, 2016 unveiling event in Hawthorne, CA

With those improved batteries and powertrain it should be one of the most efficient electric vehicles on the road.  There’s also the Supercharger network which really opens up the options for long distance driving, more than any other manufacturer. These capabilities will set a new benchmark for affordable electric vehicles.

Tonight it will be very interesting to see what the final specs. Will anyone be able to match it?  Let the (affordable) EV space race begin!

What do you think?  Is the Model 3 a game changer and why?

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