Why would Tesla want Model 3 reservations?

[Ryan H]

There's so much talk lately about how much the reservation price will be and how many reservations there will be. I'd like to take a different approach to answer those two questions, and ask why would Tesla want Model 3 reservations?

I think the answer would be to gauge interest and/or raise the capital to fund R&D. I think Tesla already knows that interest in the Model 3 is high. That leaves funding for R&D. Since funding would be the primary reason for reservations, I think that would lead to a higher reservation price with a lower expectation on the number of reservations. Keeping the reservation count low would also help when production starts to get the backlog under control sooner.

Of course, I think the other possibility would be that Tesla has funding for R&D under control with the sales of Model S and X coming in faster than they can make them. Do they even want or need reservations? I think not taking reservations would show signs of a maturing automaker that is able to fund R&D the same way their competition does. It would certainly send a message to all the critics.

 

[jaguar36]

Reservations = money.

Even if they don't need the money (which at the rate they are burning cash is unlikely) they can always just invest the money.

They'll set the price at whatever they think will give them the most amount of reservation dollars. Probably keep it rather low to get the free publicity/bragging rights of having 100k or whatever reservations.

 

[Model 3]

Tesla already knows that interest in the Model 3 is high.

Yes, Tesla knows. But they need to reassure investors about this interest. Saying "Hey, we got 100k customers that is so interested in our Model 3 that they are willing to put in a deposit of $2.500 over a year before they may even test drive the car" will assure the investors that Tesla's plan will actually pay off.

 

[taigebu]

Yes, Tesla knows. But they need to reassure investors about this interest. Saying "Hey, we got 100k customers that is so interested in our Model 3 that they are willing to put in a deposit of $2.500 over a year before they may even test drive the car" will assure the investors that Tesla's plan will actually pay off.

Not only investors but I think the ones that need most reassuring are the potential suppliers: if they show a lot of interest in the vehicle they will be able to negotiate better wholesale deals and achieve more easily the 35k expected price.

 

[EVNow]

Without WallStreet support Tesla would go bust. They need to keep putting up dog&pony shows to keep the investors happy.

Afterall they probably need to raise more money before 3 comes out ...

 

[favo]

In addition to the good reasons mentioned already, I think Panasonic wants to see a high level of interest in Model 3 before putting up a lot of capital investment in the Gigafactory. I would be shocked if Tesla doesn't take Model 3 reservations.

 

[EVNow]

I think Tesla already knows that interest in the Model 3 is high.

But, how high ? Real numbers trump guesses anyday.

Since funding would be the primary reason for reservations, I think that would lead to a higher reservation price with a lower expectation on the number of reservations. Keeping the reservation count low would also help when production starts to get the backlog under control sooner.

I don't think direct funding from reservations is the only (or even the primary) goal. As I wrote earlier, the important thing is to market Tesla to investors and raise money cheaply. For this a very high reservation count is useful. If Tesla really wants to make it big, they should try $499 to reserve. If they do it too cheap ($99), the reservation count may not carry that much weight ... so they need to be careful.

 

[McHoffa]

I don't think they'd show it this far in advance unless they were taking reservations to get money. Otherwise, why not just unveil it a couple months prior to launch and open orders then?

 

[omarsultan]

Beyond demonstrating traction to Wall Street and suppliers, it also starts to get potentially customers emotionally committed to the Model 3.

 

[JeffS]

If Tesla really wants to make it big, they should try $499 to reserve. If they do it too cheap ($99), the reservation count may not carry that much weight ... so they need to be careful.

I don't know much, but if I was a betting man - this would be my bet. EVNow for the win. Folks who drive $35,000 cars can look at $500 and say 'ok...if it's throwaway, it's throwaway'. And they'll place.
Even those of us who drive $85,000 cars (and up)...looking at a 3 for a 2nd Tesla? $499 is a winning number. I like it. EVNow - go make it so please.

 

[favo]

Reservations with a deposit also decrease the possibility of people deciding to get an ICE instead, which is, after all, Tesla's main mission. A little skin in the game and periodic updates over the next 2 years should keep interest high.

 

[ImEric]

Reservations with a deposit also decrease the possibility of people deciding to get an ICE instead, which is, after all, Tesla's main mission. A little skin in the game and periodic updates over the next 2 years should keep interest high.

THIS is the key. Well, one of the keys. I agree with what's been said here. Low reservation numbers get more people committed to buying a Model 3. And with that commitment, fewer 3 Series, PriI and even Volts get purchased in the meantime. Lock down the potential buyers who might consider something else. Get them to agree to stay in their current vehicle until one more wheel falls off.

 

[Red Sage]

250,000 people with money on the barrel head is enough to convince suppliers, investors, and financiers that Model ≡ is the real deal. It might be enough to convince Acura, AUDI, BMW, Cadillac, Jaguar, Infiniti, Lexus, and Mercedes-Benzof their impending doom as well.

 

[JuJoo]

250,000 people with money on the barrel head is enough to convince suppliers, investors, and financiers that Model ≡ is the real deal. It might be enough to convince Acura, AUDI, BMW, Cadillac, Jaguar, Infiniti, Lexus, and Mercedes-Benzof their impending doom as well.

With their half-assed-not-so-Tesla-killer renditions of an EV.

 

[neroden]

There's so much talk lately about how much the reservation price will be and how many reservations there will be. I'd like to take a different approach to answer those two questions, and ask why would Tesla want Model 3 reservations?

I think the answer would be to gauge interest and/or raise the capital to fund R&D. I think Tesla already knows that interest in the Model 3 is high. That leaves funding for R&D. Since funding would be the primary reason for reservations, I think that would lead to a higher reservation price with a lower expectation on the number of reservations.

I agree with you entirely. Capital can also fund factory build-out, service center build-out, and supercharger build-out, all of which need to happen.

People would consider it odd if the reservation deposit were *higher* than for Model X or Model S, so I'm guessing it'll be *slightly* cheaper. There will probably also be a Signature model with an extra-high reservation deposit, as with the last two cars.

 

[HelderP]

Model X was 2000 right? I'd say 500 sounds a bit low, I'm expecting it to be around $1000, we'll see but I already have some money on the side for it.

 

[NewCow]

I'm an equity analyst so I'll just add a few accounting considerations. Customer deposits are not directly funding R&D, so this isn't the purpose of taking deposits and reservations. When a customer puts down a deposit, this obviously increases Tesla's total cash position (asset), but is accounted for as a refundable deposit (liability). As of 9/30/15 (Q4 earnings are not out yet, releasing on Wed), they had just under $270m worth of deposits. This total also includes vehicle trade-ins. Tesla can't just go spend this money freely. Instead, it works to fulfill those orders as soon as possible. Once delivery occurs, the deposit is recognized as revenue and that cash now belongs to Tesla (liability is eliminated). R&D expense is recorded on the income statement, so those completed sales are really what funds R&D. Sure, it's all a big pile of cash but this is technically how it's all accounted for. It's also worth noting that a decent portion of Tesla's R&D expenses are stock-based compensation to its employees ($24m out of $179m last quarter), which is a non-cash expense.

As others have mentioned, it's more about gauging interest which helps Tesla understand demand, negotiate with suppliers, etc.

 

[wallet.dat]

Plus it generates interest among people who might not even know what Tesla is. There will be tons of Facebook updates along the lines of, "Just put a deposit down on the new Tesla Model 3!" Think of it as free organic viral marketing.

 

[Red Sage]

Not to mention all the Facebook, Twitter, YouTube, and Instagram announcements of people being so excited to have made their Reservations/Preorders for Tesla Model ≡. It will be 'trending' for weeks!

 

[ankitmishra]

Tesla can easily raise about 1 billion dollars from Model 3 reservations. They should take $20000 for Signatures reservation and should give preference to loaded top end 3 for initial deliveries. In this way, maybe 25000 signatures and 25000 loaded 3 in the beginning will give Tesla huge amount of money