Tesla’s strategy for the launch of the Model 3 slowly emerges

Since Tesla was founded over a decade ago, the company’s long term goal has been to bring a low cost, long-range electric car to market for the masses at a price of around $35,000. Today, that car, now named Model 3, is still at the heart of everything that Tesla does — it’s why Tesla is building its massive battery factory, and it’s one of the reasons why Tesla CEO Elon Musk thinks Tesla could be worth as much as Apple in a decade.

But launching the Model 3, which is supposed to come out first in 2017 and have its first full year of sales in 2018, will no doubt be risky. It will be Tesla’s riskiest move to date, following the launch of its initial car, the Roadster. While the subsequent Model S was by all accounts a success, a low cost, long range vehicle with a brand new platform design is a new beast entirely, and one which will be affected by thousands of difficult decisions Tesla makes, not to mention a variety of external factors like what are competitors launching and the cost of oil that year.

Inside Tesla Motors Inc.'s Flagship Showroom

And it’s now clear that Tesla has decided to try to minimize some of the risks with the Model 3 car by taking lessons learned from some of the choices it’s made on its other cars in the past, and looking to apply them to the design, engineering and launch of the Model 3.

A couple years ago, Tesla’s Chief Designer Franz Von Holzhausen told me that the Model 3 could potentially have a much more provocative and expressive look than the pretty standard Model S sedan. But during Tesla’s earnings call last week, Musk indicated that Tesla might launch a more conservative and basic initial Model 3, but follow-on versions of the car that could be more avant garde.

Moderated by: Katie Fehrenbacher — Senior Writer, Gigaom Speaker: Franz von Holzhausen — Chief Designer, Tesla Motors

Moderated by:
Katie Fehrenbacher — Senior Writer, Gigaom
Speaker:
Franz von Holzhausen — Chief Designer, Tesla Motors

Why? Tesla’s Model X car — which is an SUV/minivan cross vehicle based on the Model S platform — has been much delayed and most of that delay has seemed to come from getting the unusual “falcon wing” door and the second row of seats operating properly. The Model X door is the world’s first double actuating gull wing door, and Musk said it’s been “extremely difficult,” noting “there’s a reason others haven’t done this before.”

Musk said:

[blockquote person=”” attribution=””]Going to Model 3, we don’t want to have something – at high volume — that for this feature we lose a year of production. It would make more sense to go with something that we know that people would love and make a beautiful car and then innovate in more avant garde directions on that platform with future iterations, where we can then put aside any schedule and volume concern.[/blockquote]

The Model X debut.

The Model X debut.

Elon Musk is known for having a massive appetite for risk. He runs a rocket ship company, chairs a solar panel installer firm, leads Tesla, and also has investments in all of his companies. But even he feels the need to move slightly more conservatively here. The battery factory itself has enough risk to make anyone a bit nervous.

Some analysts have expected the Model 3 car to deliver 40,000 in sales in its first year, with a potential ramp up to 150,000 in 2020, and 400,000 by 2028. That’s a lot cars to ship, particularly on an initial more conservative platform and more provocative cars there after. In comparison, Tesla has shipped around 60,000 Model S and Roadster cars in total between 2008 and today.

Tesla owners take a ride in the new Tesla "D" model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla 'D' model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Tesla owners take a ride in the new Tesla “D” model electric sedan after Elon Musk, CEO of Tesla, unveiled the dual engine chassis of the new Tesla ‘D’ model, a faster and all-wheel-drive version of the Model S electric sedan, at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

At the end of the day, the original vision of the Model 3 as ‘the people’s’ electric car might have to be altered slightly. The expected price of the car — which for a long time was projected to be $30,000 or less — has creeped up to $35,000 and some analysts predict it will land somewhere between $35,000 and $40,000. But beyond that, analysts expect the average transaction price (with the added features) to be closer to $60,000, and in that way, it wouldn’t necessarily be a mass market car; more of a luxury mid-range car.

On the earnings call last week, an analyst asked Musk why if Tesla was taking so many cues from Apple on execution and product, it wouldn’t continue to focus on higher end luxury products like its new Model D? Apple wasn’t focused on launching a $30 iPhone, noted the analyst. To that Musk replied:

“The goal of Tesla has always been to accelerate the advent of sustainable transport, and make electric cars happen faster. We need to make a lot of electric cars [for that to happen] and make them more affordable.” And in that way, he’s not like Apple’s former CEO Steve Jobs at all.