Can Tesla Really Make a $35,000 200-mile EV?

By · August 11, 2014

Tesla Model S

The Model S is suffering from a lot of drivetrain replacements, but so far volumes are small. (Photo: Bradley Berman)

The EV community is probably guilty of talking about Tesla too much, but here’s a topic that really does need discussion. Can the company, having successfully introduced two cars and on the verge of launching a third, really pull off the big score and get the all-important Model 3 on the market with the promised specifications?

The Model 3 is the big one, the car that will launch Tesla on its way toward the goal of 500,000 cars a year, profitability, and really using that cavernous factory. It’s set a high barrier: a $35,000 to $40,000 price, and 200 miles per charge, while retaining a high level of equipment and coolness. And it’s due on the market right around the corner in 2017, set on an entirely new platform (with batteries from the all-new Gigafactory).

"Yes, He Can!"

Interestingly, the experts I talked to think Tesla can pull it off, though all bets are off if Elon Musk leaves the company. Would Apple have developed the iPod or iPad without Steve Jobs? Peter Thiel, the billionaire investor who worked with Musk at PayPal, told me bluntly: “I would never bet against Elon.”

Tesla Model C design

This is independent designer Dejan Hristov's concept of what a Tesla compact, perhaps named Model C, could look like. Falcon wing doors are a possibility. (Courtesy of Dejan Hristov)

I asked Thiel to elaborate, and he said it might take a bit longer than expected (after all, the Model X has been delayed several times), and then he repeated, “I would never bet against Elon.”

Phil Gott, the senior director of long-range planning at IHS Automotive, told me essentially the same thing, “Elon Musk has managed to do everything he has said so far.”

Real-World Challenges

I get it, Musk is one of the world’s game changers. But he’s only one guy, and the challenges the company has are many and varied. Right now the company’s dealing with reports of repeated Model S drivetrain replacements, including on high-level press cars. Some owners have reportedly had their car’s entire power unit replaced five or six times. Oops.

But what’s instructive here is Tesla’s response to the problem. Instead of denying that there was an issue—like GM’s solution with its ignition woes—Tesla, according to Musk, went overboard by replacing entire drivetrains so it could get cars back to customers quickly. Although it’s costly to the company, Tesla is focusing on retaining customer loyalty here, which is a good thing for the long haul.

Tesla Model 3 design sketch

Here's a very conservative non-Tesla vision of the Model 3 as a scaled-down S. My guess is that the company will want a bolder departure. (Courtesy of Remco Meulendijk/RM.design)

Tesla is clearly counting on per-cell cost reductions from its Gigafactory to build the III, since battery costs are such a big chunk of the manufacturer's bottom line. The Model S's pack is around $40,000, about what the whole car is slated to cost here. And maybe there will be some common components from existing models to make a cheaper car possible.

Mountains to Climb

But here are a few things to think about. The Model 3 will be a volume car, with a target production of about 100,000 units a year out of the gate. And if there are teething problems, the resulting recalls on that scale could be very costly to the company. Fixing a few Model S cars doesn’t break the bank, but imagine replacing the whole drivetrain on hundreds of thousands.

And could Tesla be expanding too fast? The German magazine Auto Bild, citing Tesla insiders, is reporting that after the Tesla Model 3, the company will offer Models R and C. The R, due in 2017, is a Roadster replacement, and the C (for “city”) is a Smart-like urban runabout. Get this: that one is supposed to cost less than $20,000 and have a 93-mile range.

Don’t get me wrong, Tesla could use both those cars in the lineup, but I hope it’s not devoting too many resources to them now. Throwing out the concepts to build excitement makes sense, though. I remember a couple years ago asking chief designer Franz von Holzhausen about the Model 3, and he told me it was a doodle on the back of an envelope. That was a good response.

The final caveat is that, with the Model 3, Tesla will have to tightly control costs in a way it didn’t with the expensive S. That’s important if the company is finally going to be profitable. It’s fine to deride the “bean counters” at Ford, GM and Chrysler, but they serve a purpose. If there are too many beans in the blue plate special, it loses money for the restaurant.

But hey, I'm just one guy trying to read the tea leaves. See the video below for what John Rettinger of TechnoBuffalo thinks.

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