Musk has repeatedly said that he wants to produce an electric car which is in the same price range as mid-priced ICEVs. The average US new car price was $36,113 in 2017. And Musk has stated that the "basic" Model 3 will sell for $35,000. Only problem, the basic Model 3 isn't yet available. So far, only the long-range version, selling for $49,000 has been available.
But in a surprise announcement, Tesla has announced a "mid-range" Model 3, selling for $45,000. The mid-range version will have a range of 260 miles (420 kilometres) compared with the long-range version, which has a range of 310 miles (500 km) Which makes the cost of an extra 50 miles of range $4000. This would mean that the basic Model 3 ought to have a range of just 150 miles. But the initial specs from Tesla were for a range of 220 miles. Hmmm.
There’s an overlooked comment that Musk made during the investor conference call earlier this month that is important for Tesla to be able to produce a cheaper Model 3.[Read more here]
The CEO said that Tesla came up with a new battery module design that will be less expensive:
“We came up with a new design that achieves the same outcome, that’s actually lighter, better, cheaper and we will be introducing that around the end of this year – probably reach volume production on that in Q1 or something. That will make the car lighter, better, and cheaper and achieve a higher range.”
Musk said that the production line is under construction and it should start production “in about 6 months.”
The timing matches the expected launch of the base version of the Model 3 with the “standard battery pack”, which is expected to enable 215-220 miles of range.
The battery pack itself, according to a Tweet from Musk, is from the Long Range model. By keeping the same pack, but installing fewer cells, Musk commented that “we can get it done now instead of ~February,” referring to when Tesla had last targeted production of the Standard Range model.
[Read more here]
The cost declines in Tesla's batteries and battery packs is ongoing. And I think that's perhaps what Tesla was relying on to get to $35,000 for the basic Model 3. Musk has already said that the batteries will be below $100/kWh for the cells by the end of this year, and below $100/kWh for the whole battery pack within 2 years. I suspect that the profit margin on the basic Model 3 will be small, even at volume production, until battery pack costs do get below $100/kWh. Which of course is why Tesla is delaying its production. The company probably only just scraped a profit in Q3. But when the new assembly line is completed, its profitability will be assured, and the basic Model 3s will start to roll.
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