Next Investors logo grey

Tesla to unveil $35k Model 3... but there's a catch


Published 01-MAR-2019 15:44 P.M.


2 minute read

Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.

In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.

The below articles were written under our previous business model. We have kept these articles online here for your reference.

Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.

Click Here to View Latest Articles

Historically, Tesla has failed to deliver the mass affordable electric car that billionaire CEO Elon Musk envisioned, but that looks set to change.

The long-awaited US$35k Tesla Model 3 has now arrived, fulfilling a core promise that Musk made during its unveiling in 2016.

Offering some 220 miles of range and a top speed of 130 miles (209km) per hour, the new low cost production run may be in part to the increased efficiency of Tesla’s pipeline, which created over 61,000 Model 3s in Q4 2018.

But there’s a catch.

To achieve the new price tag, Tesla will move to an online-only sales strategy, dissolving the majority of its brick and mortar network.

“Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected,” the company said in a post.

Musk added that layoffs would be an unfortunate but necessary consequence.

“We will be closing some stores and that will be some reduction in head count as a result; there’s no question about that,” he said. “There’s no other way for us to achieve the savings required to provide this car and be financially sustainable.

“I wish there was another but unfortunately, it will entail reduction in workforce on the retail side, no way around it.”

A small portion of Tesla stores will be kept on as information centres, galleries and customer service outlets.

To overcome its reduction in physical stores, the company will now go to the radical step of offering weekly trials on its range of vehicles.

“We’re going to essentially allow somebody to use the car for free for a week, and return it for a full refund. And we’re going to make it super easy to get a refund, like a one click refund,” Musk added.

The $35,000 Tesla Model 3.

Big mistake?

Is Tesla making the right call?

Despite its new online-only approach, Musk doesn’t expect the car maker to turn a profit in the first quarter, basing his expectations on one-time charges and other financial commitments.

“Giving that there is a lot happening in Q1, and we are taking a lot of time charges, there are a lot of challenges getting cars to China and Europe, we do not expect to be profitable,” he said.

“We do think that profitability in Q2 is likely,” Musk added, hardly a cause for mass excitement.

Analysts are wary about the car maker’s new business model, with Garrett Nelson of CFRA leading the charge.

“We think it’s a mistake from a strategic perspective and are sceptical of the gross margins on that $35,000 vehicle.

“In our view, they would be better served sticking to premium electric vehicles instead of this mass market, Henry Ford-type mentality of affordable vehicles for all,” Nelson said.

“It might be different if Tesla had the production capacity to drive volume and margin for this lower prices version, but they don’t currently and to add the incremental capacity would require significant additional capital investment,” he concluded.

It would appear that investors were also lukewarm about the news, with shares in Tesla Inc. (NASDAQ:TSLA) closing more than three percent down on Thursday night.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

Publication Notice and Disclaimer

The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.

This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.