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The Atlantic - The Tesla Model 3 Is Still a Rich Person's Car

The Atlantic - The Tesla Model 3 Is Still a Rich Person's Car

And then goes on to say "And that’s all it may ever be."

States that average US KBB new car price in 2015 is $33.5K which is where the Tesla is priced. For one .. it chooses to completely leave out the total cost of ownership argument - fuel savings + low maintenance.

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The Tesla Model 3 Is Still a Rich Person's Car
And that’s all it may ever be.
IAN BOGOST 8:00 AM ET

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% increase from 2014. By that measure alone, the Model 3 is competitive. And given the fact that, according to KBB, 80% 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.)

For the average person who needs a new car, tying up a third of a down payment in electric vehicle futurism is an unaffordable indulgence.
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.

Despite the decidedly average sticker price, would-be Model 3 buyers are not necessarily average themselves. For one part, Tesla extended first dibs to its existing customers, which is just to say, folks who can afford $100,000 cars. For another part, it takes a special kind of customer to be able to drop $1,000 on the promise of a new car a few years down the road, even if the deposit can be refunded.

Consider the seven early Model 3 buyers that Mashable profiled this week. Even if anecdotal and skewed due to selection via Twitter, the sample points to an undeniable pattern: they are young, mostly white (one is South Asian), mostly male, mostly work in tech, and mostly live mostly in the Bay Area. One of the two women Mashable spoke with is a race-car driver who already owns a Model S. These are not everymen and women; they are elites. Tesla is still the BMW of electric cars.

By contrast, the average new car buyer in 2015 put down only 10.4% cash, which means that the average down payment was $3,488. For the average person who needs a new car, tying up a third of a down payment in electric vehicle futurism is an unaffordable indulgence.

In fact, electric cars are exerting an under-discussed uncertainty on the car-buying market. The promise of cleaner, cheaper-operating electric vehicles—particularly at a price point that ordinary folk can afford—makes buying a traditional combustion or even a hybrid vehicle a riskier proposition than it was just a few years ago. Meanwhile, the conditions for electric vehicle adoption have become less favorable since the Model S was introduced. For one part, some states have significantly reduced the tax incentives that made more affordable electric vehicles like the Nissan Leaf appealing, pushing typical buyers back toward cheaper combustion vehicles. And for another part, falling oil prices dropped the cost of gas to under $2 at the start of this year. As with the hybrids that came before them, electric vehicles never offered an appealing financial proposition as compared to combustion engine automobiles.

Meanwhile, the design of electric vehicles makes their affordability and broad appeal more limited than they appear on first blush. The Leaf, the Chevy Volt, and the Tesla Model 3 are all smaller sedans. It’s a popular segment, as Toyota’s and Honda’s sales figures attest. But such vehicles also assume a certain type of use: They’re mostly perfect for the urban commuter. In other words, these are vehicles for solo drivers, young professionals, and the childless.

Tesla’s Model X claims to be a crossover, but it costs just as much as the Model S (and that’s before we bring up the gaudy “falcon wing” doors). The company also promises a crossover rendition of the Model 3 (the Model Y, it’s been rumored), but the result would mostly offer an alternative aesthetic rather than a different function. Anyone looking for the EV-rendition of a minivan—you know, uh, families and stuff—has no business thinking about a Tesla, except as a bedroom wall adornment (and really, as if).

But it’s not obvious what they should be thinking about instead, either. This year, Chrysler is re-launching its minivan line as the Pacifica, including an option to add a plug-in hybrid drivetrain that can go up to 30 miles on electric power alone—although it’s not yet clear how much the option will add to the Pacifica’s roughly $30,000 base price. And who knows what better option might come along next year? New cars have always depreciated precipitously in the first two years, but the uncertainty surrounding the future of transport will hit ordinary buyers the hardest. A boon in affordable electrics will make late-model combustion cars worth less at resale or trade-in. And soon enough autonomous vehicles might come along and disrupt the entire sector anyway.

In such an environment, only the privileged can see the future of electric vehicles as concentrated excitement rather than as anxious uncertainty. For the ordinary driver, affordable electric vehicles mostly produce uncertainty about the wisdom of buying and owning any kind of vehicle whatsoever. Some might celebrate that body-blow to the American obsession with automobiles, but many U.S. cities are unlivable without a car, and investments in transit and other improvements to transportation infrastructure have been limited to non-existent.

Even setting aside the privilege of pre-ordering, even those who can afford a Model 3 and its associated deposit are not really buying a car, anyway. They are buying an option on a car purchase for some time in the future, a time implied (but not affirmed) by the relative order of the reservation. That means that some portion of early buyers might see the $1,000 fee as a speculative investment rather than a pre-down payment. The earlier you reserve, the sooner your option will mature. And the more people that appear to be ordering, the more uncertain the maturity of each subsequent option becomes. Meanwhile, the scarcer Model 3s become due to potential future production delays, the more valuable the underlying option to purchase one now at the fixed price of $35,000 becomes.

Of course, options securities only hold value if they can be exercised. And technically, Tesla’s reservation terms prohibit the sale, transfer, or assignment of reservations “without the prior written approval of Tesla.” Some pre-order customers might not bother reading the fine print, and others might not care. Or they might assume—and rightly, I’d wager—that Tesla will never turn down a $35,000 check on the table, no matter who signs it. And at worst, the legitimate Model 3 buyer could just transfer the title on the spot.

Sure, would-be Model 3 speculators might be better off just investing their $1,000 in Tesla stock instead. But they might not! $1,000 invested in TSLA two years ago would only have net roughly $200 in profit if sold today. And besides, there is no truer expression of the merger of the automotive and tech industries than the automobile’s conversion into a financial instrument. The Model 3 might look like a car for the everyman, and someday it might become one. But for now it’s something else entirely: a kickstartery way to back Elon Musk, who may not be worth backing. Even if Musk manages to pull off a string of huge deliveries, his success would likely trigger investment from the major car companies, many of which have a massive capital advantage over Tesla. Maybe that’s why the company’s stock has barely moved for two years.

Captain_Zap | 07. April 2016

Re-printing an entire article without proper citations or permissions is not appropriate.

MaverickR | 07. April 2016

@Captain_Zap - I tried to include the url but Mollom SPAM blocker disallowed it

But I mentioned that it was printed by the Atlantic in the title.

Authored by IAN BOGOST 8:00 AM ET

Chunky Jr. | 07. April 2016

I'm sure there were many people 20 or 30 years ago that said PCs, flat screen TVs, and cell phones are rich person's toys and that's all they will ever be.

Hi_Tech | 07. April 2016

I'm sure owning one will make the owner feel rich! :-)

dsvick | 07. April 2016

It's also not fair to base your analysis of what the "average customer" is by looking at the some of the first people in line. Everyone who reserved a vehicle in the last week can be considered an early adopter, and early adopters are not your average customer. You wont be able to get a feel for what the average M ☰ customer is going to be until they start buying the vehicles, which they haven't done yet.

dd.micsol | 07. April 2016

I don't agree with this comment-given it is a 30 yr car with one battery replacement-35k+10k for battery replacement is 45k divided by #of yrs 30- you get 1.5k/yr. It's a heck of a lot cheaper than an ICE car. Charging it will be free as I have water and solar power.

Chunky Jr. | 07. April 2016

how do you know a battery replacement will be $10K? By the time it needs replacing, it could be $5K or less.

who owns cars for 30 years?

John Northey | 07. April 2016

As to owning cars for 30 years I present my in-laws. I gave up on my Hyundai Accent (my first new car bought in 1995) 3 cars ago and they are still using it (gave it to them as I felt repairs were too much for the quality of car but my father-in-law can fix cars and does it for fun - I was offered $25 as a trade in). If I ever get the cash together for a Model X (have kids so need seats) then I expect to stretch it out as far as I possibly can. Same with the 3 or S.

Hi_Tech | 07. April 2016

My plan for buying the Model S 3 years ago was a 20 year plan of ownership, though becomes financially viable for my price range ($40-50k ICE equivalent) in about 10 years.

dtesla | 07. April 2016

When examining the expense of something you must include life cycle costs.... so don't forget fuel and maintenance cost is less. Assuming a 50KW battery and the national average of 10.71 cents per KWh means you can "tank up" the full 200+ miles of range for $5.36. Also you will save on maintenance cost. Brake fluid every 25K miles and Battery fluid every 50K miles is it. Battery life is the big unknown. After 45K miles I have lost 12 miles of my original 265 miles range (or 4.5 % of original range).

When these factors are included the Model 3 becomes an exceptional value with below average lifetime costs.

Nic727 | 07. April 2016

Personnaly, I dont have the money yet to buy a Model 3, but it will be my first ever car I will buy.

Tropopause | 07. April 2016

Elon said is unwise to "short" TSLA. 25% of TSLA is short owners, thus they are merely trying to manipulate to their advantage.

With 325,000 reservations announced today, the "short" army is out in force.

lolachampcar | 07. April 2016

It is laughable that Elon can spell out the plan then begin executing step by step until over 300K deposits are placed on a vehicle that, in Tesla time, will not be available for almost two years. That is more likely 3 human years or 21 dog years depending upon your mood. The laughable part is that someone comes along and writes a piece like that with a straight face.

Apply a dash of critical thinking and the irritation will go away.

Red Sage ca us | 07. April 2016

lolachampcar: +1! Thank you, Doctor.

Tropopause | 07. April 2016

While Dr. Lola is more compassionate, I prefer Dr. Mclary's approach. ;)

PhillyGal | 07. April 2016

Aside from completely ignoring all the truths we know about EV ownership, it's very short sighted in that all new cars are for relatively rich folks but after a few years become used cars for those with less desire/ability to spend on something new.

MaverickR | 07. April 2016

The media can make legitimate arguments not to be too bullish about the M3 (new design, relatively new company, tesla's delays with MS/X). Instead a "hit piece" such as this just tries to further the FUD agenda. To casual observers who haven't read much about Tesla or its mission, it sends a horribly wrong message.

Haggy | 07. April 2016

The arguments are flawed across the board. Who can afford $1000? Somebody with a credit card who is willing to pay under $100 a month until car payments kick in once they get the car. Chances are they will have it paid off long before the car is available. I'm willing to bet that the typical person who put down a deposit isn't the average person who needs a car. But I'm sure many of them are average people who want a Tesla even if they can get buy with their current car.

State rebates might go away? It's a good car for the price compared to the competition and they don't have rebates at all in most cases, and if they do, they are the same as for Tesla. Either way, affordability comes down to monthly cost, and it will be impossible to beat Tesla for a sedan in that size and price range.

Red Sage ca us | 08. April 2016

There are some that insist that anyone who has had a satisfying meal or a comfortable place to sleep within the past week is 'rich'...

FelixMendeldog | 10. April 2016

So according to this author, the average new car purchase in America is ~$33.5k (plus far higher cost per mile than a $35k Tesla) but the Tesla is only for the rich? This author is either mathematically handicapped to the extent that he must be a victim of Common Core Math instruction; or he thinks an extra fifteen-hundred bucks makes one ‘rich’ (in my experience, that gap is far wider.) Typical trash from so called ‘journalists.’

shepbob | 10. April 2016

One big omission from this hit piece is that the current owners are not at the head of the line - the Tesla employees are!

Taking a page from the Henry Ford handbook, Tesla is producing a car in the Model 3 that their employees can afford.

I went for a Sunday drive today, and ended up at the Dublin CA showroom, and had a chance to chat with one of the salespeople while charging, etc. She said that many if not most of the employees she knew had put down a deposit. That's very cool!

lph | 10. April 2016

Henry Fords idea was great and worked in its time. It is also a great idea to have the sales and other people at Tesla own the M3 because it makes them more knowledgeable and hopefully more enthusiastic.

Tropopause | 10. April 2016

If the Model 3 is for the Rich, then Chevy Bolt (higher priced than Model 3) must be for the ultra-rich.

MarlonBrown | 10. April 2016

What is the most important point is that Tesla and Model 3 will likely motivate and in some cases force other auto makers to develop cars for the masses. At certain point GM, Nissan, Mazda etc would need to adjust their price and folks who value the inexpensive car segment would be served. I know members of this forum didnt like I suggested price could be increased a little bit, but I strongly believe the car for the masses are coming (not by Tesla though).

sp_tesla | 11. April 2016

Chunky Jr. | April 7, 2016
"who owns cars for 30 years?"

Jay Leno

bb0tin | 11. April 2016

@MarlonBrown
Since Model 3 is at the price point of the average new car in the US, it is already the car for the masses. This is basic statistics and applies to anything even modestly approaching a bell curve.

mos6507 | 11. April 2016

Technically speaking I'm sure USED cars are really the car of the masses, which means it will take that much longer to transition over to EVs.

Ross1 | 11. April 2016

The biggest cost is depreciation.
Why does everyone forget that?

georgehawley.fl.us | 11. April 2016

You can be less rich and buy a M≡.

carlk | 11. April 2016

People also don't recognize value of a Tesla car can not be judged by what people are willing to pay for a conventional car. No one would have even imagined that so many would spend $600+ and $50 a month just to buy a phone before the iPhone came along. A Tesla is more than just a car in the old car sense.

adias.angel | 11. April 2016

I think the author has a valid point but poorly communicated it. I'm from Michigan where the cost of living and average wage is much lower than other areas of the country. For our area the average annual wage last year was around $41k. I work with many families around my city doing volunteer work and right not many of them are struggling. While there is significant cost savings long term with an EV, it would not come back quickly enough to make the payment affordable for these families.

When the author mentioned early adopters are those in the tech or related fields I think he was spot on. One of the biggest appeals for me besides the practical long term savings (1 hour commute each way for work) is the quality of the technology. I am a software developer and for the most part am a early adopter of new technology. While I'm able to see the possibilities for most of my family, they are all average Joe kind of people, they are unable to see the same possibilities. They don't understand how a autonomous car is even possible. Even after many conversations explaining how it would be done, I still get the cynical look from them.

So for the masses in my area, the Model 3 isn't a option. It is only an option for those of who have achieved a higher level of education and used that to obtain a decent job. Sadly, that's not the norm in Michigan.

Tesla-David | 11. April 2016

Disgusting hit piece. May have to cancel my subscription to Atlantic. Tesla innovates and disrupts and provides an ownership experience that is absolutely amazing. I love my Model S and know I will love our Model ≡ when it arrives.

biggestfan | 11. April 2016

I think the title itself is kind of funny. Does that mean that the Chevy Bolt is for the Uber wealthy?

jordanrichard | 11. April 2016

Ross, depreciation, like value is like vaporware. It doesn't exist until it becomes real, meaning someone writes you a check.

You can say/show on paper that a given car is worth $25,000, but the instant someone hands you a check for $20,000, that is what is worth.

Most cars that depreciate the least, cost relatively more to begin with.

Mike83 | 11. April 2016

The rich calling the middle class rich? OK Koch brothers or Exxon Executives; does $100 billion make you rich? How much money does Inhoffe, McConnell and the other GOP government officials get supported by the fossil fuel interests to keep the welfare tax dollars coming to them? The hypocrisy stinks to high heaven.

Tropopause | 11. April 2016

Regardless of how you define the Model 3, Tesla is doing more than any other car company to make BEV's affordable.

bb0tin | 11. April 2016

The mission of Tesla is not to sell new cars to people who never bought new cars. It is to transition from ICE to sustainable (electric) vehicles. Talking about people who cannot afford a Model 3 is entirely missing the point. If they were not going to buy a new ICE car, around the Model 3 price point, then the Model 3 was not aimed at them. It is aimed at those who would have bought a new ICE car, and can afford a Model 3. This is a market far larger than Tesla will be able to supply for many years.

Ross1 | 11. April 2016

@Jordan:
"Most cars that depreciate the least, cost relatively more to begin with."

Did you mean the opposite?
An expensive car can drop hundreds of thousands a year.
A cheap car only a few thousand

Red Sage ca us | 12. April 2016

bb0tin: True enough. That is an argument I make myself. However, please note that while the average sale price of new vehicles in the US is between $33,000 and $35,000... The majority of new cars sold here are between $22,000 and $24,000. The 'average' price point is bent higher a bit by there being a version of the Porsche Panamera that costs over $265,000 among others.

mos6507: +1! Correctomundo! Indeed, as I have noted elsewhere, new car sales are dwarfed by preowned car sales in the US. Frugal buyers are happy to have a car that is 'new to me', so to speak, in most cases.

Ross: Depreciation will be of no consequence to Tesla Model ☰ buyers for at least three years after purchase. BMW 3-Series, AUDI A4, Cadillac ATS, Lexus IS, Jaguar XE, and Mercedes-Benz C-Class buyers...? Eh... Not so much.

carlk: +1! A very good point. Technology advances. And eventually, so does the market.

adias.angel: Then you will have to show them through personal demonstration. That's OK. I remember in the early 1980s when I was desperately trying to get Family members interested in computers, attempting to convey their importance. They all gave me the same blank stare you probably see when speaking of electric cars today. But, 20 years later, none of them had a household without a computer. Sometimes it takes a while.

Tesla-David: Hey! That sounds like a 'Letter to the Editor' to me!

jordanrichard: +1! Yup! Shole iz.

bb0tin: +1! Precisely on target. It is all about... The MISSION. Thank you.

Ross: Edmunds and Kelley be [DURNED]. ;-)

Haggy | 12. April 2016

It depends what sort of average you mean. Medians and modes are types of averages, and either of those might be more relevant than the arithmetic mean price.

bb0tin | 12. April 2016

@Red Sage ca us
Regarding the first point in your post.
Car buyers normally shopping below the average price point will consider the Tesla because of it's cheaper running costs and because of the current incentives. This means that many buyers in the $25K-30K range will consider the Model 3. Buyers in the lower ranges, and even those who have never bought a new car, will also consider the Model 3. This is what happened with the Model S. It is what happened with two of my friends who have placed deposits.
The mass market does not mean the majority market i.e. over 50%. Having said that, I believe that the Model 3 is considered by over 50% of buyers who are aware of it.
So I stand by my point that the Model 3 is indeed a true mass market vehicle.

starke49 | 12. April 2016

Expect much more of these propaganda articles disguised as educated presentation of facts. The truth is Auto manufacturers were caught with pants down and the short sellers are in trouble right now. Citron Research publicly declared they are shorting Tesla at the start of March and probably hoped to create a drop in price like they did with Valeant Pharmaceuticals. Unfortunately for the shorts the stock has moved up from $182 pps, not towards the $100 pps they predicted by end of year. With a second reveal coming and possible announcement of turning cash positive I would not bet against Tesla and Musk.
I can barely afford 1 M≡ but after seeing the crowd in line I put a deposit on 2 and intend for these to be 20 year vehicles for my wife and I. The product will be superior and state of the art IMHO, so I will find the money for both!!

PhillyGal | 12. April 2016

@starke49 - well done!

Lots of Model S owners spent way more than they otherwise would have for much the same reasons. Long term ownership, lower operating costs, and superior tech.

Red Sage ca us | 13. April 2016

bb0tin: I concur. That is precisely the conclusion I came to. People who are actually able to perform basic napkin mathematics will realize that the amount they pay over the life of the car for even a fuel efficient vehicle in the $22,000 to $24,000 range is about the amount they end up spending for a $35,000 vehicle with greatly reduced fuel costs due to it being electric drive. Until such time as an electric vehicle that could fulfill all their needs was available, they would have to pass on the notion. The moment it is possible though, they buy.

bb0tin | 13. April 2016

@Red Sage ca us
I still come across people who have never heard of Tesla and still think electric cars are not any good. A recent poll in the US showed that 48% of people have never heard of Tesla. This means that the market is at least twice as big as currently being demonstrated. In Norway they just had 60% of new car sales EV, PHEV or hybrid. The mass market is truey ready for the EV.
http://www.greencarreports.com/news/1103383_two-thirds-of-new-cars-in-no...

Red Sage ca us | 13. April 2016

bb0tin: Well, I believe the market for viable electric cars is considerably more than twice as large as most pundits expect. In a world where 100,000,000 new vehicles might be sold each year, Tesla Motors simply doesn't have enough capacity to serve them all. That is why they are acting as the 'carrot', to show traditional automobile manufacturers the way to create proper electric vehicles... As well as the 'stick', to beat their [BUTTS] in the marketplace in every segment where they don't comply. I'm sure traditional automobile manufacturers would not be surprised if electric cars became their most sought after products once they built them as well as possible... They just don't want that to happen.

Petroleum companies went from being lubrication companies, to being energy companies. Then they later added plastics and synthetic materials to their roster. They adapted to a changing world and will likely continue to survive even when oil is no longer the primary source of fuel on the planet. But it seems the traditional automobile manufacturers do not possess the willingness to adapt, change, mutate, or evolve as necessary to wean themselves off of oil.

bb0tin | 13. April 2016

@Red Sage ca us
Yes, the fossil fuel companies and traditional auto manufacturers could, and should, be transitioning to sustainable options. But they are dragging the chain and opposing the necessary changes. New entrants are filling the void and will prosper. The change to sustainable energy and transport is only going to increase in scale and rapidity. Those who invest in these companies have only themselves to blame when they lose their money. Greed can be both stupid and blind, never mind ethically appalling.