Tesla unveiled the Model 3 last week, a car I like to refer to as the “poor man’s Tesla.” Technically, it’s the Tesla for everyone, a futuristic and attractive-looking car that’s within most people’s budgets, which hasn’t been true for earlier Tesla models. The company began accepting pre-orders immediately and has continued, on places like Twitter, to highlight that figure as it increases. A report from Reuters over the weekend even suggested that Tesla’s orders have already topped $10 billion in 36 hours, if one applies the average cost of the car to each and every order placed.
Folks, I hate to be a party-pooper, but it’s all a bunch of baloney.
The numbers mean virtually nothing. While more than 276,000 people had pre-ordered the new car by the end of the day on Saturday, we need to keep in mind that those consumers are only putting a refundable $1,000 down toward a car that’s expected to cost $42,000 on average. I don’t think a lot of consumers thought it through – and why should they? They had an opportunity to “buy” a cool car with an investment they can pull back at any moment. The process to buy a car took seconds, not hours, as it does if you’re actually ordering a car.
276k Model 3 orders by end of Sat
— Elon Musk (@elonmusk) April 3, 2016
Sadly, as I remarked on Twitter and discussed during lunch with a friend this weekend, the situation reminds me of the cavalier spending during the U.S. mortgage crisis, when folks were buying houses they couldn’t afford. In that case, a lot of people ultimately ended up in foreclosure. Here, though, a lot of these consumers might be able to walk away, should they decide they no longer can afford the car. That’ll pull the cash rug right out from under Tesla.
That’s important to keep in mind.
Tesla is counting these sales as cash. At 276,000 pre-orders, it technically has about $276 million to start building all of its Model 3 units. That’s going to be a harder task than it sounds, though. Tesla doesn’t sell anywhere near that number of cars right now and hasn’t yet proven that it’s capable of building that many at once. The firm sold just 17,400 vehicles during the fourth quarter, for example. At that pace, it could be, theoretically, about four years from the time Tesla starts building the Model 3 until the later preorders arrive.
Think of what the competition will do in that time.
And the biggest selling point, at least that I’ve heard in brief conversations with people interested in buying the Model 3, is the pipe dream tax incentive. It seems most folks aren’t familiar that the $7,500 tax credit, the credit that has somehow resulted in consumers ignorantly believing the car will ultimately cost about $25,000, will dry up by the time their Model 3 ships. Unfamiliar? The tax credit only applies to the first 200,000 EV cars in the United States. That figure includes every car that has already been sold, in addition to cars from other manufacturers. A huge bulk of these pre-orders won’t ever receive that credit.
Because of all of this, the only time it makes sense to start counting Model 3 sales is when full transactions begin to occur between Tesla and its customers.