Model 3: the true S killer?

[malcolm]

Been thinking about Disruption and Tesla's mission to drive the transition to electric transportation by producing compelling electric vehicles.

It's been interesting/hilarious to see the upset caused to traditional car makers by the S, the Supercharger network and the Tesla stores. (But then it's not my money/job that's affected.) Four years on they have plenty of press releases but no real answers on the road.

But it's also interesting to see the appearance of traditional thinking on this website: S and X owners naturally want to protect the value of their investment and therefore expect Tesla to do the traditional model hierarchy thing and maintain the advantage of these early vehicles. (Totally understandable: now it is the value of our very real investment/commitment that might be affected. Now it's not so funny.)

Yet doing so is at odds with their mission to bring about the EV revolution.

It would be a tragedy if we of all people fail to understand this and complain long and loud about how "Tesla has abandoned/insulted/undermined existing/loyal/longstanding customers/supporters/fans!"

Get ready for disruption, people.

(Roadster owners were fortunate in that they sort of understood that they were Tesla 1.0, although the Roadster 3.0 shenanigans hasn't helped. Model S and X owners are about to go through the same experience)

 

[Chris TX]

1. Gigafactory will bring cheaper batteries.
2. Cheaper batteries means Model ≡ can be made affordable.
3. The "trickle up" effect means the luxury Model S gets the cheaper batteries, which allows Tesla to start putting in much more luxurious and higher margin stuff.

You'll be able to choose standard/large battery, standard/luxury experience, and standard/high-performance experience. There will be plenty of people that pick the standard/standard/standard config, but more options mean more margin opportunities for TSLA.

As an original owner of a 2013 Model S, I don't care about depreciation. Tesla is doing all they can to keep the CPO inventory low which keeps the demand/prices high. I didn't buy this car to resell. It's a 10+ year car for my family. Plenty of other people might worry about residual value, but it's not wise to buy a new car as an investment

 

[RobStark]

Model 3 will no more kill Model S than C Class kills S Class or 3 Series kills 7 Series.

Some current Model S owners prefer a smaller car and will switch.

But there will also be a 7 Series ,A8, Lexus LS or S Class owner that will take his place because he has been sitting on the sideline waiting for Tesla to prove its long term viability, to increase the size of the Supercharger Network to fit his needs, or to cross 300 EPA range barrier. Or any number of reasons why people feel comfortable switching from old tech to new tech.

 

[malcolm]

<rant>

It's also the problem that Elon comes up with a gag like S3XY and we rearrange it into SXY3, with an R somewhere in the mix depending on your choice of hierarchy.

But there is no hierarchy/spoon.

There is only a development timeline. Each of these platforms pushes the tech further forward and (assuming Tesla survives) these advances can be fedback into later versions of earlier models. (Roadster 3.0 and P85DL are absolutely the right idea, but IMO are trying to be pushed too soon due to market pull, Falcon door delays, engineering enthusiasm with new tech, etc)

Eventually there won't be significantly better or lesser levels of performance or range any more than there will be better or lesser versions of AP. All Teslas will eventually be very close in ability. Each will be Best In Class.

But in the short term, newer cars will leapfrog the tech of the older vehicles and residuals are going to drop.

We need to expect and brace ourselves for these sorts of hits. We can't keep demanding the equivalent of P85DL every time Tesla launches something new.

Model 3 is going to kill (sales of) the (present) Model S.

An S refresh will happen, but it's likely to be in a Roadster-like timeframe accompanied by similar levels of silence from Tesla.

And of course, eventually the whole summon-and-hire-a-self-driving-vehicle blows a massive hole through the entire car ownership/status symbol/p*nis envy thang anyway.

Lots of former Porsche/Audi/Mercedes/BMW owners aren't used to any of this.

None of us are.

</rant>

 

[RobStark]

New chemistry lower cost cells from the GF that can be put into the Model 3 can just as easily be put in Model S. And more of them. The new cells will likely be manufactured in Japan as well and cells cost will be averaged out.

Greater margins will allow new features like cooled seats.

It isn't like Tesla needs to re engineer a 5.0 litre twin turbocharged V8 and 10 speed dual clutch transmission for Model S.

Anybody expecting summon thang disrupting prestige of premium cars anytime soon will be sorely disappointed.

Legislation 1. Governments in California and China( huge markets for EVs and Tesla) are already putting the breaks on autonomous vehicles and they don't exist yet.

and human nature Second. People fear change. It might take a generation for legislators that see their lap tops crash from time to time to trust a computer to drive their car. Even with military grade triple redundancy.

3rd Safety. No one is giving up their S Class to be driven around in Google pods anytime soon.

 

[malcolm]

Model 3 will no more kill Model S than C Class kills S Class or 3 Series kills 7 Series.

Some current Model S owners prefer a smaller car and will switch.

That's perfectly true in a mature market where you can differentiate between vehicles in terms of performance, levels of comfort, size, bells and whistles.

Tesla isn't at that point. They don't need to maintain the S above the 3. You don't see C class killing the S class because there isn't any chance that they can swap places. You don't expect the new C to outgun the S. Not now. The classes are fixed - in both senses of the word.

Motor performance and the Gigafactory do allow for that possibility in the short term for Tesla's 3 and S. It would have been more obvious with the X and the S, with the X being first to the punch with Dual Motor. (Thanks, Falcon-door-supplier-who-couldn't)

Now, will the S benefit from/inherit a better battery? Of course. But the ultimate limiter on battery size/ total range will be Supercharger power level/dialback rates. It is in Tesla's interest to push all models to be the best that they possibly can be at a particular price point, over maintaining some sort of model hierarchy.

 

[malcolm]

Anybody expecting summon thang disrupting prestige of premium cars anytime soon will be sorely disappointed.
Legislation 1. Governments in California and China( huge markets for EVs and Tesla) are already putting the breaks on autonomous vehicles.
Second. People fear change.
3rd Safety. No one is giving up their S Class to be driven around in Google pods anytime soon.

But we've all been well trained/conditioned to see prestige in certain terms. Tesla is doing it with performance/range rather than -ahem- trim. That's winning them plenty of attention/customers.

The other prestige thing is car-as-male-jewellery. Perfectly fine. If (eventually) I can summon a cool car to drive me around then I don't need to own one.

Yes people fear change, but they also like cool stuff. A jaw-dropping Model 3 will get attention/customers, none of whom will care that current Model S and X owners feel temporarily left behind/ignored.

Google pods are funny. And the first mobile phones were a laughing stock. Do both rich and poor now use them alike? Yup. Does this bother the rich? Nah - there's always analogue wristwatches/aeroplanes/launches/ yachts/obscure holidays etc. if summoning/hire means that cars go the same way as contracts changed phone ownership the rich can just move on to something else - as is their right/privilege.

Again, a great AP experience in a compelling EV is something that the tech-curious/early adopters will want to explore.

 

[malcolm]

Eta
Doesn't a kick ass Model 3 wreck Tesla's cash flow?

No for two reasons: Model 3 reservations are $1000 and we won't be told everything on March 31st (my total, unsubstantiated guess is that the Gigafactory will be able to deliver a base model 3 with a higher range than expected).

 

[aronth5]

Eta
Doesn't a kick ass Model 3 wreck Tesla's cash flow?

No for two reasons: Model 3 reservations are $1000 and we won't be told everything on March 31st (my total, unsubstantiated guess is that the Gigafactory will be able to deliver a base model 3 with a higher range than expected).

But that also means the Model S can have another 100+ in range and for many people that will be a key reason to buy the S.

 

[R.S]

I would say no, for three easy reasons.
1. Size, sometimes, matters. The S will stay a bigger car and therefore there will be customers that want it, because they need it, or have to compensate something.
2. A higher price makes a better car. You could, of course, make the 3 upgradable until it reaches every comfort the S gives, but then the price difference will be very small.
3. A bigger car will always have more battery and therefore more range (even if it uses more energy), which might become irrelevant at some point, but not in the next 5 years.
(anyone that doesn't believe my point 3, try to scale the S down to matchbook size and think if it sounds logical for that car to have 250 miles of range, then scale it up until its the size of planet earth and imagine how little 250 miles range would be for such an enormous car)

 

[McHoffa]

Musk already talked about a possible 500 miles Model S two years ago. I personally think that the 3 will get the 250 miles range, and the S will jump up to a 120kWh or something with 450+ mile range in two years, for the price a 90 is now

 

[tga]

3. A bigger car will always have more battery and therefore more range (even if it uses more energy), which might become irrelevant at some point, but not in the next 5 years.
(anyone that doesn't believe my point 3, try to scale the S down to matchbook size and think if it sounds logical for that car to have 250 miles of range, then scale it up until its the size of planet earth and imagine how little 250 miles range would be for such an enormous car)

It's not necessarily linear. Bigger car = more weight = more wh/mi (or wh/km). The battery may or may not be big enough to handle the increased energy consumption without a loss of range. Ie, a bigger car with a bigger, heavier battery may have 20% greater consumption, but 15%, 20%, or 25% more battery capacity, giving a loss of range, same range, or more, depending on the specific case.

 

[malcolm]

But that also means the Model S can have another 100+ in range and for many people that will be a key reason to buy the S.

Yes, but not necessarily as quickly or as cheaply as you might like. You're assuming that Model 3's new tech will be easy to fit into the S and I'm saying you'll probably have to pay most of the price of the 3 to see it happen and/or wait for the S refresh. Don't think P85DL, think Roadster 3.0 (I.e. Tumbleweed, crickets etc)

 

[Panoz]

I think the biggest determination of the crossover possibility of the Model 3 is the battery pack - is it identical to the Model S? If it is, there is definitely the chance you have a crippled battery situation - i.e. the old Model 40's were Model 60's with a software fix. If the Model 3 uses the same footprint battery, and only goes 200 miles, it's possible Tesla could open up the Model 3 to more range and the crossover chances - and devaluation of the Model S - are greater.

However, everyone should remember that Tesla isn't stupid. If we have thought about luxury model devaluation, THEY have. We must assume that Tesla will not do anything to abandon its high-end purchasers.

I suspect the Model 3 has a smaller battery pack and smaller overall footprint to achieve 200 miles of range.

It's anyone's guess right now.

 

[malcolm]

I would say no, for three easy reasons.
1. Size, sometimes, matters. The S will stay a bigger car and therefore there will be customers that want it, because they need it, or have to compensate something.
2. A higher price makes a better car. You could, of course, make the 3 upgradable until it reaches every comfort the S gives, but then the price difference will be very small.
3. A bigger car will always have more battery and therefore more range (even if it uses more energy), which might become irrelevant at some point, but not in the next 5 years.
(anyone that doesn't believe my point 3, try to scale the S down to matchbook size and think if it sounds logical for that car to have 250 miles of range, then scale it up until its the size of planet earth and imagine how little 250 miles range would be for such an enormous car)

1 Yes, the S and the X will stay the size they are. But inheriting the tech from Model 3 will make them cheaper. Think Spacex not Mercedes.
2 No it doesn't. We've just been conditioned to believe that. Again, think Spacex.
3 Only up to a point. Beyond a certain capacity the limit is determined by the Supercharger power level/dialback rate and Supercharger cross-country separation. It's how often you stop/how long you wait. Something like 45-60mins every 300 miles @ 70 mph is the sort of thing which may fix the max capacity of a future battery. More likely is normal human boredom levels/seat comfort/bladder capacity. The physical size of the battery will continue to change, but charge capacity will be decoupled from the size of the vehicle.

 

[ItsNotAboutTheMoney]

Been thinking about Disruption and Tesla's mission to drive the transition to electric transportation by producing compelling electric vehicles.

It's been interesting/hilarious to see the upset caused to traditional car makers by the S, the Supercharger network and the Tesla stores. (But then it's not my money/job that's affected.) Four years on they have plenty of press releases but no real answers on the road.

But it's also interesting to see the appearance of traditional thinking on this website: S and X owners naturally want to protect the value of their investment and therefore expect Tesla to do the traditional model hierarchy thing and maintain the advantage of these early vehicles. (Totally understandable: now it is the value of our very real investment/commitment that might be affected. Now it's not so funny.)

Yet doing so is at odds with their mission to bring about the EV revolution.

It would be a tragedy if we of all people fail to understand this and complain long and loud about how "Tesla has abandoned/insulted/undermined existing/loyal/longstanding customers/supporters/fans!"

Get ready for disruption, people.

(Roadster owners were fortunate in that they sort of understood that they were Tesla 1.0, although the Roadster 3.0 shenanigans hasn't helped. Model S and X owners are about to go through the same experience)

Model S/X should also continue to fall in price or improve in comfort and utility. It's not just the cost of batteries that's falling.

But the Model S/X sales would fall as it would no longer get the same boost from all the people buying up, including in Norway.

 

[malcolm]

However, everyone should remember that Tesla isn't stupid. If we have thought about luxury model devaluation, THEY have. We must assume that Tesla will not do anything to abandon its high-end purchasers.

That depends on whose luxury models you are devaluing.

Is Tesla out to undermine the existing business models of Porsche, Mercedes, BMW and Audi? Absolutely.

Are existing Model S and X owners going to get caught in the crossfire in terms of falling residuals. I think so. Will Tesla be able to throw them a lifeline in terms if an upgrade? Yes, but it won't be free. It may only be possible through a new purchase (personally I think Roadster 3.0 will really be the Maximum Plaid model which is years away)

Like Roadster owners, are some existing S and X owners going to be upset by this? YES. Some have stretched themselves financially to get a Tesla. Others are used to the minimal tweaking that Audi et al call new models. This is what disruption means. And when it's your money, it's not in the least bit funny. Not. At. All.

Roadster owners have, by and large accepted this. They knew what they were signing on for. S and X owners have waited patiently and sometimes less patiently and naturally, expect some sort of protection for their investment. Totally understandable. But if you are used to being courted by Big Auto in a slowly evolving market then I'm sorry, but you've taken your eyes off the road.

Tesla is Spacex is Musk.

 

[tdelta1000]

No... it will be an "S" killer. It think it will be an "S" enhancer. When TM final release all of the data on the 3 some will find it too small, it doesn't have enough range and reduced cargo size to be an issue.

 

[malcolm]

But the Model S/X sales would fall as it would no longer get the same boost from all the people buying up, including in Norway.

But why would you buy from Audi etc if an S or an X is cheaper? How valuable is leather and wood when you are paying for fuel and maintenance? Now sure, some people want these things and have every right to purchase them. It will be interesting to see how people respond to the choice.

 

[jbcarioca]

Eta
Doesn't a kick ass Model 3 wreck Tesla's cash flow?

No for two reasons: Model 3 reservations are $1000 and we won't be told everything on March 31st (my total, unsubstantiated guess is that the Gigafactory will be able to deliver a base model 3 with a higher range than expected).

My opinion, strongly held but without proof, goes like this:

1. Model III production costs will be, say, half those of a Model S configured identically.
2. The Model III model range will be as broad as Model S, perhaps broader.
3. The Model Y will cost a tiny fraction of Model X, and also have a broad variety within the range.
4. From past product profitability work for multiple large car manufacturers it is consistently true that top-of-the-range models generate >80% of the entire line, often more that 100% due to mid-range and above.
5. Given my comments above I'm confident that the base Model III/y will contribute to overhead but will not be profitable on a GAAP basis because base models rarely are for any manufacturer.
6. It follows that the Model III fully decked out PxxD will be more profitable than will be either S or X now, but revised models of those two will have major benefit from simplification learning with Model III/y so the next big cars will make more money also.

in sum, I do not think Model III is an S killer, just a major enabler for the next generation Model S.