Tesla needs to sell more expensive Model 3s so the company doesn’t "die," Musk says

Tesla CEO Elon Musk announced the latest details of the dual-engine, all-wheel-drive version of the Model 3 over the weekend, including a high-end variant that is more expensive than a entry-level model. S or X. While we have known for a long time that they were approaching, this is the greatest clarity that Tesla offers about specifications, prices and options.

Taken in a way, it is a sign that Tesla is working on the first production fights of Model 3 and is ready to start offering more diverse options, as with the Model S or X. But Tesla also needs Sell ​​these the most expensive Model 3 to increase your revenue at a time when the company is spending more money than ever before. Meanwhile, Tesla is delaying the manufacture of the cheapest version of what is supposed to be the electric car of the company's "mass market", a decision that according to Musk is a matter of life and death for the company.

Model 3 technically starts at $ 35,000, which is the way it has clung to that "affordable" nickname. But Tesla decided from the beginning of the production that the first version of Model 3 would be the one with the long-range battery pack ($ 9,000 extra) and the premium upgrade package ($ 5,000), which together increase the initial price to $ 49,000. All-wheel drive is also a $ 5,000 option, so it means that these new models will start at $ 54,000 for the foreseeable future, and that's without Autopilot.

The fastest variant, called the "Performance" model, will start at $ 78,000 and can go up to $ 86,000 if customers add Autopilot and $ 3,000 for the "total self-drive" capability Tesla promises to come in the future Tesla will start delivering the first dual-engine 3s model in July, according to Musk.

The use of an engine on each axle means that these Models 3 will have greater grip and improved handling. They will also be faster. Tesla says that they can go from 0 to 60 miles per hour in 4.5 seconds, according to Tesla, and that they will reach 140 miles per hour. The performance of Model 3 will be a second faster offline, capable of going from 0 to 60 in just 3.5 seconds. But it will reach a maximum of 155 mph, the same maximum speed limited by software as other higher-performance Tesla cars.

The Performance variant comes with a new carbon-fiber spoiler, 20-inch "sporty" wheels and includes the Tesla premium upgrade package and the long-range battery pack, which means it should last 310 miles classified by the EPA per load (although driving the car more aggressively will make it difficult to reach that maximum).

Tesla has been selling dual-engine versions of the S and X Models for years, and Musk promised that the option would come to Model 3. In fact, one of the most frequent questions that customers ask on Twitter is when this the version would finally arrive, now that the production of Model 3 is increasing.

But one of the other most common questions Musk asks is: when will Tesla start manufacturing (and delivering) the cheapest version of Model 3, which is supposed to cost "$ 35,000 before incentives, "According to the company's website?

That sketchy version is what was supposed to help Musk fulfill his often- repeated claim that Model 3 is a "mass market car" that is " affordable ]] "Unfortunately for customers who are waiting in the reservation queue for that version of Model 3, it is still far away, and the goal is constantly changing. Musk said over the weekend on Twitter that the base version of Model 3 will not ship until "3 to 6 months" after Tesla starts manufacturing 5,000 models 3 per week. The last thing we knew, the company was still moving slowly towards 2,500 per week, with the intention of reaching the rate of 5,000 per week in late June or early July.

The reason why Tesla is waiting to make the most affordable version of Model 3 is simple: Tesla earns more money in more expensive models . As we learned earlier this month, when the company reported its earnings for the first quarter of the year, it is currently losing money on each Model 3 it ships, even though it ultimately points to a 25 percent margin on the car.

That's a precarious situation for a company in the midst of a well-documented cash crisis. It is spending more than ever, and although it brought more revenue last quarter than before, that number was slightly inflated by a change in the way the company does its accounting. Meanwhile, one third of the company's cash reserves, almost $ 1 billion out of a total of $ 2.7 billion, comes from reimbursable deposits in its products.

To reduce costs, Musk has ordered the company's finance team "to control every expense around the world, no matter how small, and cut everything that does not have a strong value justification," according to an email. internal electronic filtering recently. It has flattened Tesla's management structure as part of a "complete reorganization," and is "cutting back activities that are not vital to the success of the mission [Tesla’s]," according to another email.

While Musk swears that Tesla can convert the company's financial situation without raising more money, analysts disagree. Some think it will have to raise a few billion before the end of the year, and others are not even sure if that will be enough to keep pace with the company's expenses. Goldman Sachs believes that Tesla will need to raise $ 10 billion by 2020 in order to continue to meet Musk's ambitious performance targets, objectives to which its compensation is now directly linked.

In the midst of this and the announcement of the most accurate model 3, Musk was asked about the fate of the increasingly mythical entry-level version on Twitter this past weekend. His response was blunt : "Min. Shipping [imum] immediately cost Model 3 [would] caused Tesla to lose money and die," he wrote. Focusing on the higher priced versions at this time, then, will help Tesla to "live".

All this has some industry experts who doubt if the more affordable 3 model will ever exist in a meaningful way. "Without a doubt, Tesla needs cash," says Michelle Krebs, senior analyst at Autotrader. "Musk has said he does not want to go out, so that means he has to generate it internally, and they can not do that with the $ 35,000 3s models, so the high-end versions will go on sale first. that a $ 35,000 model 3 is a unicorn. "

"They just can not afford to sell cars for $ 35-40,000 and they will put in as much time as possible," says Sam Abuelsamid, senior analyst at Navigant Research. "While the $ 80K + 3 model could help that car in the short term, it is also likely to cannibalize Model S sales, so the net benefit to the bottom line could be negligible. a symbolic low-end number [Model 3s] until the end of the year ".

Even if Tesla sends the $ 35,000 version of Model 3 later this year, there are reasons to believe it will be as weird as Krebs suggests. As we have known since its debut, to begin with, it is not easy to maintain the price in that baseline. Customers have to say no to options like Autopilot ($ 5,000 extra) or the longer-range battery pack ($ 9,000). And they only receive one color: black. Choosing any other paint scheme is an instant increase of $ 1,000.

There are probably many customers who are happy to wait to buy this version of Model 3. But people who are waiting for Model 3 for $ 35,000 are also likely to worry more about the federal $ 7,500 tax credit for vehicles electric And Tesla is about to reach a milestone that will diminish, and eventually erase, those potential savings.

The program established by the government that allows this credit also includes a limit for car manufacturers. Once an auto manufacturer sells 200,000 eligible cars, the refund remains at the full level for the next two financial quarters before it is halved to $ 3,750. Six months later, it is cut in half again before it is completely eliminated.

Tesla has nearly 200,000 cars sold in the United States, so the watch is about to start working. If the company somehow does not reach the 200,000 cars sold until July 1, the rebate will remain in full until the end of this year.

It's still years before Tesla reaches the kind of total production volume that makes it possible for traditional car manufacturers to sell cars at a price of $ 35,000 or less. Therefore, the company remains inherently incentivized to focus on the luxury segment of the market, where margins are higher and options / upgrades are easier to sell. People will surely discuss whether this means that Musk cheated people by promising that Model 3 would be a "mass market" car that was "affordable." However, what is clearer than ever is that the car is more than an indicator of electric vehicles. As Musk says, it is also the key to Tesla's survival.