An Electric Car Goes Mainstream
Six letters sum up the most exciting story of the automotive world for 2018—Model 3. Tesla launched the car last year, but even through a year of “production hell” followed by Dantesque second “delivery hell,” the car has set a high-water mark for electric car sales—and is even making a mark in the overall premium car category. Even more remarkable, it did that without producing one of its promised “affordable” $35,000 models. Average transaction prices for the year were probably in the $50,000 range as the dual motor and long-range models were the bulk of those built.
Tesla won’t be announcing its quarterly and annual fiscal results for a few weeks, but speculation is it will turn in another “profitable” quarter. (I use quotes since Tesla does not present its financial results in the same format as other, established car companies.) All credit for that will go to the Model 3 (along with the valuable ZEV credits their sales generate).
At this point Tesla is 15 years old and produced and sold almost 250,000 cars this past year, so I think it’s safe to say it can be considered an established entity. That’s different than saying it’s a solid company as it still has a ways to go to get its financial house in order. As a point of reference, this year it passed up Volvo, Jaguar Land Rover and Mitsubishi in U.S. sales and has BMW, Mercedes and Mazda in its sights for the coming year.
The official numbers for 2018 from Tesla were:
- Model 3 – 61,394
- Model S & X – 25,161
- Model 3 – 63,150
- Model S – 13,500
- Model X – 14,050
Tesla’s plan to keep these numbers going includes production of the long-awaited $35,000 Model 3 and the beginning of European and Chinese deliveries. It also will begin to offer a leasing option for the Model 3. All of the Model 3’s sold thus far have been purchased for cash or financed.
Further 2019 plans include the introduction of the Model Y—the SUV variant of the Model 3—and potential groundbreaking and start of production of the Model 3 in China to avoid some of the tariffs that have knocked down sales in that country.
Tesla also cut the MSRP of all three of its models by $2,000 to partially compensate for the drop in the federal tax credit that kicked in on January 1. Instead of a $7,500 tax credit, all Tesla vehicles purchases now only qualify for a $3,750 credit.
The Future Outlook
The growth Tesla is showing is impressive and, as is the case with most car companies, it is coming on a new model. Having another new model like the Y in the pipeline is a good plan to keep the company trending the right way. However, the company also has to take a look at its now aging S and X lines to see about refreshing them. Buried in the spectacular numbers for the quarter were the combined sales totals for the Models S and X were down in the U.S. compared to last year.
The previous top-seller in the plug-in market was the Nissan Leaf back in 2014, when it sold 30,000 units. Even with a slick new model with a longer range it was lucky to hit half that in 2018. Others can only dream of the kind of sales the Model 3 turned in this year. But, as anyone who’s been in the car business for some time knows, one good year from one great model does not a successful car company make. For a small company like Tesla, the growth itself presents issues beyond the core function of the organization–building and delivering electric cars.
The bottom line is 2019 promises to be another banner year for Tesla, but the company is likely to continue to face challenges turning its successes into something substantial on the balance sheet. In the meantime, the plug-in world has a new champion that many others will be trying to emulate.