Tesla to close stores, take orders for $35k Model 3

Elon Musk has apparently turned to memes to cope with increased SEC scrutiny over his tweeting habits

Elon Musk has apparently turned to memes to cope with increased SEC scrutiny over his tweeting habits

The swath of initiatives Tesla Inc.

Musk had hinted about the announcement in a cryptic tweet Wednesday.

Earlier today Tesla announced its long-awaited $US35,000 Model 3. "With the highest consumer satisfaction score of any vehicle on the road, we are confident you will want to keep your Model 3", Tesla said.

The hardware to allow for self-driving has already been installed on every Tesla model since October of 2016, but activating it requires an extra US$4,000 "Autopilot" option, or for buyers to tick the box on a US$7,000 feature labeled "Full Self-Driving". A second version, the Standard Range Plus, will start at $37,000. Musk posted a few hours later that deliveries would reach about 400,000.

"We see the switch to online sales as a sign the company has been unsuccessful in reducing the production costs of the Model 3 enough to profitably produce it at a US$35,000 price, and the plan as a "Hail Mary" in the face of a largely exhausted USA demand for higher priced variants". "But we do think that profitability in Q2 is likely". Musk said that, "a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers".

The lower-priced model is expected to be available for order in Europe and China in three to six months' time.

To help get it down to the promised $35,000 starting price, Tesla simplified the features on the standard Model 3.

"Other auto companies do this too - start with a rich trim mix".




In a note to investors titled "The $35k Model 3 - Genius or Desperation?", Bernstein's Toni Sacconaghi, Jr. noted that, "Given its seeming abruptness, it does not appear that yesterday's announcement was made from a position of strength". It's taken two years for the base Model 3 to come to fruition but as of Thursday evening, it became real.

Tesla is increasing its investment in service as well. "While this may stabilize the air-pocket in first-quarter sales, we're concerned it's a sign of a brand that may be, at the margin, losing its halo of exclusivity".

Over almost a decade, manufacturers like Ford, Peugeot, and Hyundai have made efforts to sell cars online. "If orders jump by 100,000 units (which we believe is possible), that alone can pull in US$250 million of cash onto the balance sheet".

Musk also backed off of earlier guidance that the company would be profitable in all future quarters. This is $8,000 less than its previous price of $96,000. And when has Tesla ever, ever fallen short of its promises?

"The fact remains that with a good digital sales and marketing strategy, you no longer need salespeople to sell great products".

Another way Tesla was able to bring the price down was by switching exclusively to online sales.

Rates equalweight, price target US$350. And then there's Autopilot, which will set you back $3,000 if you order the vehicle with it, or $4,000 after delivery.

"In many parts of the USA, we are unable to sell effectively because of franchise laws", he said.

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