Model 3 reveal effect on other luxury car sales

[Brando]

BMW 3 and 4
Merc C and E
Does this help "reduce" costs? rhetorical question only - i.e. no reply expected.

Reminds me of GM price levels Cad, Buick, Pontiac, Oldsmobile, Chevy many shared parts (parts prices varied by brand for the same starter or alternator). Japan also moved away from long option lists for each car to 3 price levels per model.

With direct sales, you don't build to inventory but to actual customer orders - big advantage, no?

 

[AZ Desert Driver]

As I silently Cheer - my TSLA shares are in the black again, and the future is looking better after the Shareholder meeting.
Yet, some will still buy from "the other guys" base on price, availability and specific use needs. My buddy just bought a BMW I-3 and got the $50,000 car for $24,000. Three years old, 8,000 miles and 1/2 price. He loves my model S but could not pass up such a fire sale. He has 60 miles range (yep, only 60 miles) but this works for his around town daily driving. If he needs equipment for a long range trip, he will rent for that event. The other guys will still have product to sell for many more years. They have been wounded, but not killed.

 

[wdolson]

BMW 3 and 4
Merc C and E
Does this help "reduce" costs? rhetorical question only - i.e. no reply expected.

Reminds me of GM price levels Cad, Buick, Pontiac, Oldsmobile, Chevy many shared parts (parts prices varied by brand for the same starter or alternator). Japan also moved away from long option lists for each car to 3 price levels per model.

With direct sales, you don't build to inventory but to actual customer orders - big advantage, no?

When the company is growing and demand is high, building to demand works well. The problem comes when demand levels out and you don't have a backlog of orders. It will likely be a while before it happens to Tesla overall, but it could happen to the Model S when Model 3 production catches up with pre-orders. The Model S has a few things the 3 doesn't, but the price difference is pretty steep and if the time delay getting a 3 or S is close to the same, a lot more people will opt for the 3 even if they could afford an S.

The rumored refresh on the S will help. If they lowered the price of the S that would help too, but the 3 will remain in more people's price ranges.

Then the question becomes, what do you do with your production space if there are only enough sales right now to keep the line running all the time. Building to inventory helps mainstream car makers even out the ups and downs of demand. Unless demand really crashes, if supply on dealer lots is high, they can just throttle back production and offer some incentives to clear the backlog.

I think of the airlines redoing everything to have hubs instead of a lot of direct routes. All airlines except Southwest did that in the 90s. The hub system worked very well when the airlines were running close to capacity, but when people cut back on flying after 2001 and again during the Great Recession, the hub based airlines struggled while Southwest was able to adapt to the changes better.

To buy a Tesla you also have to plan ahead. I read years ago that over 1/2 of car sales are impulse purchases. People go looking at cars and buy something. Some people are more impulsive than others. I personally would never make an impulse purchase of anything that costs more than a few dollars, but I know many people who have made quite large purchases on a whim. They think differently than I do.

Tesla's sales model caters quite well to someone like me, but not so much to those who are more impulse driven. Building to inventory meets the needs of the more impulsive buyers.

 

[Troy916]

These guys under reported Model 3 sales by a large margin, but if you take the 6000 number for May, it slots in with some well established cars.
May 2018 YTD U.S. Passenger Car Sales Rankings - Best-Selling Cars In America -

If Tesla does manage to get to 5000 cars a month soon, with most M3 sales in the US this year, that will put it well up there on the best selling cars list for the entire year.

Correction they are working towards 5000 cars a week, not a month.

 

[electracity]

Tesla has built inventory model S. They will likely regularly build inventory model 3 when production gets high. That should crush other EV sales in particular. Someone toying with buying a Bolt for several months may decide one Saturday to go down and take a look and buy one. While that is an impulse buy, it may also be long considered. Tesla wants to capture those customers when it can.

I thought Musk's comment on building a "model 2" was interesting. This would be one way to never cut the price on the model 3. As EVs become less expensive they would add features to the model 3 to hold the price point. First item to add would be a HUD, of course.

 

[Brando]

When the company is growing and demand is high, building to demand works well. The problem comes when demand levels out and you don't have a backlog of orders. It will likely be a while before it happens to Tesla overall, but it could happen to the Model S when Model 3 production catches up with pre-orders. The Model S has a few things the 3 doesn't, but the price difference is pretty steep and if the time delay getting a 3 or S is close to the same, a lot more people will opt for the 3 even if they could afford an S.

Just consider how Sales of Merc S Class dropped when E Class was introduced.
OR how about BMW 3 Series vs Series 7/8.
Doesn't make any sense.

Impulse buy? Very, very rare.
Everyone else, when making a purchase 3rd only to housing and college - considers carefully.

AND Tesla at 500,000 still only 0.05% of market
At 5,000,000 still would only be 1 in 20 or about 5%.

 

[SageBrush]

AND Tesla at 500,000 still only 0.05% of market

What market ?
I would only include the non SUV, non truck, $30k+ USD car market.

 

[wdolson]

Correction they are working towards 5000 cars a week, not a month.

I keep getting my wires crossed on that.

Just consider how Sales of Merc S Class dropped when E Class was introduced.
OR how about BMW 3 Series vs Series 7/8.
Doesn't make any sense.

Impulse buy? Very, very rare.
Everyone else, when making a purchase 3rd only to housing and college - considers carefully.

AND Tesla at 500,000 still only 0.05% of market
At 5,000,000 still would only be 1 in 20 or about 5%.

It probably happens more in the lower end of the car market, but impulse buying happens a fair bit. Here is one article that touches on it:
7 Most Impulsive Buys And Which Ones Are Worth It/Not Worth It

 

[Brando]

Best selling car models worldwide 2017 | Statistic

suggest search - you'll find interesting:
best selling vehicle US 2017
best selling vehicle world wide 2017

 

[Reciprocity]

These guys under reported Model 3 sales by a large margin, but if you take the 6000 number for May, it slots in with some well established cars.
May 2018 YTD U.S. Passenger Car Sales Rankings - Best-Selling Cars In America -

If Tesla does manage to get to 5000 cars a month soon, with most M3 sales in the US this year, that will put it well up there on the best selling cars list for the entire year. The M3 is priced in the premium market, but its base price overlaps with the top end of the mass market "family" cars like the Accord and the Camry.

The Model S collapsed the top end large sedan market which wasn't big, but has been dominated for years by European brands. The Europeans have taken notice and are doing more than anyone else to electrify. Part of that is Tesla breathing down their necks, but it's also their governments encouraging it.

The Asian and other American car makers have been more complacent, refusing to quite believe Tesla could eat into their market share. But a successful M3 would do that. That's probably why the FUD machine has gone into overdrive. Some people are trying to kill Tesla before Tesla can kill their favorite car company.

Tesla also has a big time advantage. There is a lot of talk of "Tesla killers" from one brand or another, but nobody is going to have enough batteries to compete in numbers with the Model 3 for at least 2 years, and probably more like 4. Look at how much Tesla evolved from the first year of the Model S in 2013 (about the same timeline point in MS production as M3 production now) through 2017. Even through 2015 the Model S was a dramatically better car than what they were building in 2013. And the Model X came out during that time frame, much later than expected. The Model 3 was much closer to its original timeline prediction.

There are other car companies that will be coming out with EVs in the next few years that might compete with Tesla on features. They will struggle to match the convenience and quality of super chargers, and nobody will be able to compete in volume. Which enables Tesla to build EVs cheaper than anyone else.

The thing that many of us understand but naysayers do not, the Model S drew a lot of people into the large luxury sedan segment because it was the only serious long range EV with a decent charging network and dead sexy styling. The Model S wasnt actually very well suited to pull many people up market, it did so because it was the ONLY game in town. The model 3 is different in that it is very well suited to pull people up segment or to be more accurate, Tesla has the ability to offer a car that covers the $23k Camry all the up to the $103k BMW M3 (if they offer a ludicrous mode.) This breadth of real competitive value, not just the only game in town, makes it ideally suited to capture sales you wouldnt really expect them to capture. If you add solar, and you drive a lot of miles, then the model 3 can even be interesting to someone in the market for a Corolla level car. These people would have to make sacrifices because the payment would be high, but the long term savings and the higher residual value would make it competitive. Even if you use conservative assumptions for residual value, you will always have a higher residual value on a car that cost more to begin with. For example, you are really comparing a $23k/2 Camry to a $35k/2 Model 3. Or $11,500 to $17,500, this makes the difference just $6000. Over 5 years, that's only $1200 a year. Maint and fuel all but covers that difference if you drive at least 15k miles. For the Corolla, it would be $18k/2 compared to $17500, or a difference of only $8500. If you add solar, and you drive 2000 miles a month, then the Corolla can come a target as well. Now the big difference is the payments for these vehicles would be much cheaper, so the person making this decision would have to compensate for that somehow. This where the Model 3 being such a sexy machine comes in. This is the kind of thing that makes people skip that $5 latte every day and the type of person who would have solar already cares enough to make the sacrifices required.

This makes the market for the Model 3 vs the BMW 3/4 a very silly thing to talk about. They are not even remotely comparable. Now if BMW comes out with a compelling EV version of the 3/4, then we can talk. But they are 5 years away from being able to do that at any kind of volume.

 

[Brando]

@wdolson - thanks for article
and many other people for posts in this thread, too many to thank.

I forget, how strange my thinking is compared to the average person.
Only bought 2 cars 1978 ('76 99 Saab) 1990 ('89 900 SPG)
(lucky to have gotten company cars to drive or not needed a car)
Thought very few needed more than 2 Liter 4 cylinder engine.

I still suspect Tesla will avoid building for inventory and stimulate sales BEFORE demand drops too much.
Inventory and Ads add costs - avoiding added costs the smart thing to do and Tesla seems smart.
This is the big advantage to direct sales/make to order model and I expect Elon/Tesla to make the most of it.

So my opinions of car ownership are out of the norm, for sure.
Here is top 20 selling vehicles US for 2017 - hope you find interesting:

The Best-Selling Vehicles of 2017 Aren’t All Trucks and SUVs (Just Most of Them) | Flipbook | Car and Driver

 

[RubberToe]

The thing that many of us understand but naysayers do not...
The model 3 is different in that it is very well suited to pull people up segment.

Agree with all of this, especially the bolded part. Most expensive car I ever previously bought was a 2013 Prius. Model S/X were out of my price range. The Model 3 was (almost) in my price range, and I pulled the trigger anyway. For every person who can afford a Model S, there are 10+ who can afford a Model 3 or want to think they could, hence the 500,000 reservations. And with the solar powering the car, there is no fuel bill except for Supercharging while traveling.

When Tesla starts selling the $35,000 in 2019 at a profit, and everyone finally realizes that SOMEONE can do that, then everyone will be trying to play catch up to Tesla. Tesla has a 5 year year lead over everyone WRT mass production of both EVs and the charging infrastructure. And no one is ever going to catch them, no matter how much money they throw at the problem. Tesla will still be 5 years ahead, because Tesla will not be standing still waiting for others to catch up. And Tesla will soon have the money rolling in to bankroll all of their expansion plans.

RT

 

[wdolson]

The thing that many of us understand but naysayers do not, the Model S drew a lot of people into the large luxury sedan segment because it was the only serious long range EV with a decent charging network and dead sexy styling. The Model S wasnt actually very well suited to pull many people up market, it did so because it was the ONLY game in town. The model 3 is different in that it is very well suited to pull people up segment or to be more accurate, Tesla has the ability to offer a car that covers the $23k Camry all the up to the $103k BMW M3 (if they offer a ludicrous mode.) This breadth of real competitive value, not just the only game in town, makes it ideally suited to capture sales you wouldnt really expect them to capture. If you add solar, and you drive a lot of miles, then the model 3 can even be interesting to someone in the market for a Corolla level car. These people would have to make sacrifices because the payment would be high, but the long term savings and the higher residual value would make it competitive. Even if you use conservative assumptions for residual value, you will always have a higher residual value on a car that cost more to begin with. For example, you are really comparing a $23k/2 Camry to a $35k/2 Model 3. Or $11,500 to $17,500, this makes the difference just $6000. Over 5 years, that's only $1200 a year. Maint and fuel all but covers that difference if you drive at least 15k miles. For the Corolla, it would be $18k/2 compared to $17500, or a difference of only $8500. If you add solar, and you drive 2000 miles a month, then the Corolla can come a target as well. Now the big difference is the payments for these vehicles would be much cheaper, so the person making this decision would have to compensate for that somehow. This where the Model 3 being such a sexy machine comes in. This is the kind of thing that makes people skip that $5 latte every day and the type of person who would have solar already cares enough to make the sacrifices required.

This makes the market for the Model 3 vs the BMW 3/4 a very silly thing to talk about. They are not even remotely comparable. Now if BMW comes out with a compelling EV version of the 3/4, then we can talk. But they are 5 years away from being able to do that at any kind of volume.

I think I've said much the same over the last couple of years. Julian Cox did an analysis between a base Model 3 and a base Corolla and the Model 3 was cheaper over 5 years when you factor in all the costs of ownership.

I have believed from the start the real competition for the Model 3 is the Camry, Accord, Fusion, etc. The Model 3 costs more, but most people who are willing to spend $35K on a decently equipped Camry will be able to stretch the budget a bit more for a similarly equipped Model 3, especially when the cost of ownership factors are considered.

I'm also one of those who got upsold into a Model S. I was looking at $30-$40K cars and not finding anything that met my criteria, then on a whim looked at the Model S and found it blew away every one of my criteria. I have never considered a similarly price ICE, nor would I. The competitors to the Model S in the same price range are big on gadgets, but ultimately aren't really all that much better as cars than a much more reasonably priced sedan. With most luxury cars you're paying for a bunch of creature comforts and a logo on the grill.

OK maybe a BMW 7 Series would handle a bit better on tight curves than a Ford Taurus, but they are identical in stop and go traffic in the city. Because it's lighter a Subaru WRX would probably handle curves better than both of them.

@wdolson - thanks for article
and many other people for posts in this thread, too many to thank.

I forget, how strange my thinking is compared to the average person.
Only bought 2 cars 1978 ('76 99 Saab) 1990 ('89 900 SPG)
(lucky to have gotten company cars to drive or not needed a car)
Thought very few needed more than 2 Liter 4 cylinder engine.

I still suspect Tesla will avoid building for inventory and stimulate sales BEFORE demand drops too much.
Inventory and Ads add costs - avoiding added costs the smart thing to do and Tesla seems smart.
This is the big advantage to direct sales/make to order model and I expect Elon/Tesla to make the most of it.

So my opinions of car ownership are out of the norm, for sure.
Here is top 20 selling vehicles US for 2017 - hope you find interesting:

The Best-Selling Vehicles of 2017 Aren’t All Trucks and SUVs (Just Most of Them) | Flipbook | Car and Driver

Different people think differently. A segment of the population carefully considers all decisions and another segment wing it. Everything falls on a spectrum. On one extreme are people who overthink everything to a point they can't order in a restaurant and on the other extreme are people who never plan for anything and each day is pretty much running from one shiny object to the next. But the bulk of the population pretty much falls in a two peaked bell curve with one largish chunk of the population thinking through most decisions, especially important ones and another group largely living life by the seat of their pants.

Most people loath the classic car sales tactics, but they do it because it does work often enough to encourage them to keep doing it.

People who consider major purchases usually are better with managing their wealth and are more likely to have a college degree that makes them a good living. So you'd probably find fewer impulsive people buying Teslas to date. As Tesla moves down market, more people likely to want to make impulse purchases will be walking into Tesla stores.

 

[Brando]

I think I've said much the same over the last couple of years. Julian Cox did an analysis between a base Model 3 and a base Corolla and the Model 3 was cheaper over 5 years when you factor in all the costs of ownership.
...
People who consider major purchases usually are better with managing their wealth and are more likely to have a college degree that makes them a good living. So you'd probably find fewer impulsive people buying Teslas to date. As Tesla moves down market, more people likely to want to make impulse purchases will be walking into Tesla stores.

I still suspect Tesla will avoid building for inventory and stimulate sales BEFORE demand drops too much.
Inventory and Ads add costs - avoiding added costs the smart thing to do and Tesla seems smart.

This is the big advantage to direct sales/make to order model and I expect Elon/Tesla to make the most of it.
(no need to guess what people want to buy when making to a backlog)

Is it true that the demo/test drive cars at the Tesla Stores are the top model S/X fully optioned (perhaps not P or L ??)

So impulse buyers can always buy demo or used. Nice to only "inventory" the highest margin product.
(existing owners might be tempted to upgrade if they drive top of the line model after using loaner)
Custom order top performance options seem very reasonable. Those aren't impulse, are they?

side note: search -> taxi companies buying Tesla

 

[AZ Desert Driver]

I think I've said much the same over the last couple of years. Julian Cox did an analysis between a base Model 3 and a base Corolla and the Model 3 was cheaper over 5 years when you factor in all the costs of ownership.

I have believed from the start the real competition for the Model 3 is the Camry, Accord, Fusion, etc. The Model 3 costs more, but most people who are willing to spend $35K on a decently equipped Camry will be able to stretch the budget a bit more for a similarly equipped Model 3, especially when the cost of ownership factors are considered.

I'm also one of those who got upsold into a Model S. I was looking at $30-$40K cars and not finding anything that met my criteria, then on a whim looked at the Model S and found it blew away every one of my criteria. I have never considered a similarly price ICE, nor would I. The competitors to the Model S in the same price range are big on gadgets, but ultimately aren't really all that much better as cars than a much more reasonably priced sedan. With most luxury cars you're paying for a bunch of creature comforts and a logo on the grill.

OK maybe a BMW 7 Series would handle a bit better on tight curves than a Ford Taurus, but they are identical in stop and go traffic in the city. Because it's lighter a Subaru WRX would probably handle curves better than both of them.



Different people think differently. A segment of the population carefully considers all decisions and another segment wing it. Everything falls on a spectrum. On one extreme are people who overthink everything to a point they can't order in a restaurant and on the other extreme are people who never plan for anything and each day is pretty much running from one shiny object to the next. But the bulk of the population pretty much falls in a two peaked bell curve with one largish chunk of the population thinking through most decisions, especially important ones and another group largely living life by the seat of their pants.

Most people loath the classic car sales tactics, but they do it because it does work often enough to encourage them to keep doing it.

People who consider major purchases usually are better with managing their wealth and are more likely to have a college degree that makes them a good living. So you'd probably find fewer impulsive people buying Teslas to date. As Tesla moves down market, more people likely to want to make impulse purchases will be walking into Tesla stores.

There is another group of buyers. You nicely describe the thinkers/planners - and you nicely describe the seat-pants folks. The missing segment are the desperate...I just crashed my car and NEED one NOW. Cheap, shiny, reliable, features...may not have as much interest as ..it its right here and I need it now.

 

[McRat]

... Julian Cox did an analysis between a base Model 3 and a base Corolla and the Model 3 was cheaper over 5 years when you factor in all the costs of ownership.
...

Hehehehe... good stuff. Did he include the 3 years of Uber fares for the Model 3 while you wait for one? The base Model 3 is $50,000. There is not a $35,000 version.

Seriously, a Corolla costs much less than any EV sold in US, even the 58 mile Fortwo. In Calif, the Model 3 is $39,550+ after rebates, the Corolla is over $20,000 cheaper before dealer discounts. At $3.50 a gallon that's 11.5 years of gas, assuming the national 14,000 miles a year. 11.5 is a magic number. It's the average life expectancy of a car today. The Corolla is just a hair bigger inside than the Model 3.

Assuming insurance is the same (unlikely), tire costs favor the lighter Corolla, it will take about a dozen oil changes, or $600 including filters. No spark plugs. Coolant? Eh... Add $50.

So assuming electricity is free on a Model 3, and it requires nothing, the cost is equal if you drive them until they go to the scrap dealer.

But electricity is not free. Even solar costs money.

 

[xav-]

As I silently Cheer - my TSLA shares are in the black again, and the future is looking better after the Shareholder meeting.
Yet, some will still buy from "the other guys" base on price, availability and specific use needs. My buddy just bought a BMW I-3 and got the $50,000 car for $24,000. Three years old, 8,000 miles and 1/2 price. He loves my model S but could not pass up such a fire sale. He has 60 miles range (yep, only 60 miles) but this works for his around town daily driving. If he needs equipment for a long range trip, he will rent for that event. The other guys will still have product to sell for many more years. They have been wounded, but not killed.

$24k for that ugly thing with only 60 miles of range (for now) and likely not much warranty left (the joy of doing out of warranty work at a BMW dealership).. I call that anything but a “fire sale”. $24k would get you a brand new very nicely equipped civic...

 

[Knightshade]

I think I've said much the same over the last couple of years. Julian Cox did an analysis between a base Model 3 and a base Corolla and the Model 3 was cheaper over 5 years when you factor in all the costs of ownership.

A base corolla is about $18,000.

A base model 3 is $35,000.

So... I don't think his numbers are likely to add up there.

I found like an hour plus long video where it's supposedly covered but not gonna spend the time to watch that- just to point out it's a couple years old now and probably assumed the full $7500 tax credit- which is clearly not happening to (hardly) any $35,000 Model 3 buyers.

 

[wdolson]

I still suspect Tesla will avoid building for inventory and stimulate sales BEFORE demand drops too much.
Inventory and Ads add costs - avoiding added costs the smart thing to do and Tesla seems smart.

This is the big advantage to direct sales/make to order model and I expect Elon/Tesla to make the most of it.
(no need to guess what people want to buy when making to a backlog)

Is it true that the demo/test drive cars at the Tesla Stores are the top model S/X fully optioned (perhaps not P or L ??)

So impulse buyers can always buy demo or used. Nice to only "inventory" the highest margin product.
(existing owners might be tempted to upgrade if they drive top of the line model after using loaner)
Custom order top performance options seem very reasonable. Those aren't impulse, are they?

side note: search -> taxi companies buying Tesla

The stores have a wide mix of options and versions. I've only been to a store 2 or 3 times, but about half the cars were 75s. For test drives you can ask to drive the version you are considering, they have P, 100Ds, and 75Ds for the test drives, though now that the performance of the 75s are the same as the 100D, they may have fewer of one or the other.

There is another group of buyers. You nicely describe the thinkers/planners - and you nicely describe the seat-pants folks. The missing segment are the desperate...I just crashed my car and NEED one NOW. Cheap, shiny, reliable, features...may not have as much interest as ..it its right here and I need it now.

I forgot about that. My contingency plan if that happened to me was always to find something used until I could get the new car I wanted. I had a couple of accidents years ago, but never enough that I needed to replace the car.

A base corolla is about $18,000.

A base model 3 is $35,000.

So... I don't think his numbers are likely to add up there.

I found like an hour plus long video where it's supposedly covered but not gonna spend the time to watch that- just to point out it's a couple years old now and probably assumed the full $7500 tax credit- which is clearly not happening to (hardly) any $35,000 Model 3 buyers.

The video is here:
Charged EVs | How the Tesla Model 3 could trigger the collapse of the traditional auto industry

I've watched it all the way through twice. I rewatched the part on the caparison. He used the total cost of ownership figures from Edmonds for the Corolla and a BMW 328i and used their same formula for the Model 3. He did get a slightly higher TCO for the Model 3, but only around $600 more than the Corolla. That included expected depreciation over 5 years of ownership. The TCO for the Corolla was $25,528 and the Model 3 $26,100. The BMW was $45,630.

He had already done a pros and cons comparison between the 328i and the Model 3. He said even if his TCO is off by $10K and it's $36K TCO instead of $26K, your TCO over the BMW is $10K less for a better car.

Julian Cox lectures like a rather dull college professor, but he has a lot of very good info in that lecture.

 

[SageBrush]

the full $7500 tax credit- which is clearly not happening to (hardly) any $35,000 Model 3 buyers.

I think that is pretty reasonable, but the 25% and 50% credits will be around for a while.
And some states offer ~ $2500 tax credit (Colorado offers $5k)

So Tesla will be offer the base model for $30k to a large swath of people.
Fuel savings over 200k miles for PV owners amount to around $10k

Surprising to many, the Model 3 is affordable to those still capable of arithmetic