Tesla Launches $35,000 Model 3 At Last; Shifting All Sales Online And Closing Stores
We've got quite the roundup of Tesla related news for you today. Tesla has announced general availability of the long-awaited $35,000 Model 3 base edition that Elon Musk promised over three years ago.
The Model 3's previous starting price as of yesterday was just a bit over $42,000 so this is good for a seven thousand dollar discount. The new base Model 3 will have a range of 220 miles under normal driving conditions and will achieve a 0-to-60 time of 5.6s on the way to a top speed of 130 miles per hour.
The announcement comes at a crucial time for Tesla (NASDAQ:TSLA), as U.S. tax incentives for buying an electric vehicle are drying up. Buyers a few months ago could get up to $7,500 back in tax rebates and those incentives going away means buyers are less likely to see the value proposition in a Model 3. A nice $7,000 discount goes a long way in easing that pain, and the timing makes sense, as Tesla has probably burned through the bulk of its impressive half a million (or more) pre-orders it received for the vehicle.
Tesla is hoping the price cut will boost demand; must make some sacrifices to ease the hit on margins
However, margins have been a crucial item for the EV-maker as of late, and last quarter the company cited 20 percent margins on the Model 3. A steep price cut will undoubtedly hurt margins and Elon touched on this during the media call saying, "It is excruciatingly difficult to make this car for $35,000 and still be financially sustainable." Something must give to allow for the price cut.
That something is Tesla's retail stores. Tesla will be closing many of its salesrooms in an effort to further cut costs; the sales staff at those locations will be laid off. The remaining brick and mortar locations will serve as a physical gallery and information center where would-be buyers can stop in and check out the cars in person, but all sales will be done on-line and via mobile according to CEO Musk:
You can buy your car on your phone in about one minute in the U.S. We will still have stores, but they will be converted to galleries and information centers.
-Elon Musk, Tesla CEO
As an aside to the move to all-online sales, the company will now offer customers a full money back deal as long as the car is returned before 1,000 miles tick on the odometer or up to a week has passed since delivery is taken of the vehicle.
Lastly, and most importantly to investors and traders, Mr. Musk said on the call that he expects the company to miss profitability this quarter after two consecutive black quarters. He said optimistically that the company might eek out a small profit but will most likely lose money for the first quarter. The Tesla CEO did say he expects a solid and profitable second quarter.
Wall Street never wants to hear that kind of news and Tesla stock immediately sank over 3 percent in after-hours trading after the news broke. Prices are hovering around $310 per share as of this writing, off from the 52-week high of $387.
It makes sense here that Tesla is looking to boost demand of its Model 3. It spend a huge amount of effort and capital last year learning how to optimize its processes to really pump up production and delivery of the Model 3. Now that it has somewhat scaled out its ability to produce Model 3's, its looking to capitalize on that by enticing customers in a lower price bracket. It seems like a good move here to move sales online in conjunction with a cheaper $35,000 Model 3. If they can cut costs enough to absorb the marginal impact of reducing the Model 3's price by almost 20 percent, all while boosting demand and keeping its newly optimized production lines busy then its a win-win.
You can immediately order a base Model 3 on Tesla's website with delivery in "two to four weeks".
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