Published on December 6th, 2018 |
by Zachary Shahan
December 6th, 2018 by Zachary Shahan
Europeans are finally on the verge of tasting the Tesla Model 3. As has been long expected, Tesla will start shipping the highest-trim versions of the Model 3 in the first batches to the Old Continent. Also, as long indicated by Tesla, those shipments will begin in the 1st quarter of 2019.
We can do a little reading between the lines for broader messages, but there’s also important nuance that is left out that we won’t have any insight into for a while, if ever.
Before we jump into Europe, one question that must be lingering for many is: What do the European delivery estimates mean for US Tesla Model 3 demand? One thing seems clear. Demand has tapered off a bit for the Model 3 Performance and Model 3 Long Range AWD — enough that Tesla is ready to ship to Europe. As far as demand for the Model 3 Mid Range, who really knows? Tesla CEO Elon Musk indicated the Mid Range was really an attempt to help more reservation holders get a somewhat affordable Model 3 before the maximum tax credit gets cut in half. There’s also a broad expectation that demand for the higher-trim options was dropping after clearing through reservation backlogs and the Model 3 Mid Range was an attempt to boost demand enough to finish 2018 with maximum deliveries in North America alone. What happens with the Model 3 Mid Range after December is an open question. Will Tesla keep it around or will it get dropped from the option list as Tesla gets to Model 3 Standard Range production?
But wait, what does the European delivery schedule definitely tell us about US Tesla demand?
Nothing. That big chunky paragraph above is full of speculation. Tesla may have primarily delayed European deliveries simply to maximize the number of US buyers eligible for the $7,500 US EV tax credit. With the credit being cut in half in January, Tesla may have said it’s finally time to get some cars produced for Europe (and China), US demand be damned.
That said, I subscribe to a different opinion. I’m assuming the US tax credit expiration has significantly boosted demand for the Model 3 in the 4th quarter but also means a strong drop-off in demand for the 1st quarter, a drop-off that Tesla is already seeing clearly. Also, I just don’t think Tesla would have released the Model 3 Mid Range if there was strong enough demand for the higher-priced options, if demand for those trims covered all of Tesla’s production capacity. Additionally, Tesla has sent repeated emails and even text messages to reservation holders to nudge them to buy, test drive, or at least cancel their reservations. Tesla has mentioned several times that you better order now to make sure you get the full tax credit, and the deadline for ordering a car and being eligible has been extended a few times. Again, that’s just not something that makes sense if demand is higher than production capacity. (That said, Tesla may have noticed an obscene number of questions from potential buyers about shipment timelines and may have also realized orders would taper off strongly if buyers thought they were too late to get the car in 2018. Plus, Tesla did reportedly buy some trucking companies to help with deliveries.)
Okay, that’s enough on the US for now. Let’s get to Europe.
I think it’s very hard to estimate how much demand there is right now for the Model 3 Performance or Model 3 Long Range AWD + Premium Package in Europe. It’s not just a question of this market’s size in Europe, which Tesla has highlighted is bigger than it is in the US, broadly speaking. (“The mid-sized premium sedan market in Europe is more than twice as big as the same segment in the US. This is why we are excited to bring Model 3 to Europe early next year,” Tesla wrote in its October letter to investors.) We’ve seen in the US that Model 3 buyers come from all over the place. Tesla revealed on its 2nd quarter conference call that the top 5 models traded in for the Model 3 were the Toyota Prius, BMW 3 Series, Honda Accord, Honda Civic, and Nissan LEAF. On the 3rd quarter conference call, the Tesla team went further and explained that conquest sales showed buyers were coming from all over the place. Our monthly and quarterly Tesla sales reports have demonstrated that further by showing that Model 3 sales have been through the roof but haven’t demolished sales of the cars “in its class,” which basically means the Model 3 is adding significantly to the class pie.
Also, while many Model 3 reservation holders may prefer the Model 3 Standard Range because of its lower price, they may be convinced to buy more expensive versions of the car to get them sooner. That happened to a fairly large degree in the United States, and the question is just whether Europeans will be as impatient or will hold onto their cash while waiting for the base version (or are more financially strapped and need to wait for the lower priced version).
Lastly, premium mid-sized sedans may sell in higher numbers in Europe, but that’s probably true in large part because Germany is the home of BMW, Mercedes, and Audi. Germans buy German cars, and they will continue to do so. Or maybe many Europeans just have more disposable income due to relatively high wages, low health care costs, and more left-leaning policies. Also, as one commenter notes, there are more than twice as many Europeans as Americans.
I’d love to hear some reader thoughts on Model 3 demand expectations for Europe. I know only ~0.01% of you will chime in, but the discussion should be fascinating nonetheless. My guess is that Tesla will send relatively few Model 3s to US customers in the first quarter, but will get as many as possible into customer hands at the end of March, which will mean bulk shipping Model 3s to US customers again then. Given that Tesla won’t shut off deliveries to the US completely, European and Chinese demand for the Model 3 Performance and Model 3 Long Range AWD + Premium Package — minus those US shipments — should be strong enough to dominate 1st quarter and also 2nd quarter deliveries.
By the end of the 2nd quarter, Tesla should have plenty of US demand remaining for these trims as well thanks to continuous word-of-mouth sales and store walk-in sales. However, if there are enough base Model 3 holdouts in Europe and China, and presuming Tesla keeps steadily increasing its production capacity, we could see the $35,000 Model 3 in the US at the end of the 2nd quarter. [Update: There are reports that Tesla reps have told reservation holders they can expect the $35,000 Model 3 in the 2nd quarter of 2019, 4–5 months from now. That said, we’ve seen estimates of a similar timeframe for approximately a year.]
If not in the 2nd quarter, then I have to assume the base Model 3 will be delivered starting in the 3rd quarter of 2019, which should provide a strong (huge) boost to demand across the world. Once that version of the car is on the market, Tesla should be supply-limited through the end of 2019, at least, and probably through all of 2020.
After that, world domination through word of mouth.
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