Early buzz sets the bar high for Tesla’s Model 3

Michael Wayland
The Detroit News

The $35,000 Tesla Model 3 has generated more buzz than any electric car.

In the first three days that Tesla Motors Inc. took pre-orders for the battery-powered sedan, 276,000 cars were reserved, according to a Twitter post from CEO Elon Musk on Sunday. He said a one-week total will be announced Wednesday.

Although the reservations — which require a $1,000 fully refundable deposit online or at Tesla stores — do not represent actual sales, they show an unprecedented level of interest.

Here’s some perspective: In 2015, only 149,000 electric cars were produced worldwide by all automakers combined, according to IHS Automotive. The year before, fewer than 138,000 were produced.

Those production figures include 40 brands, though only a handful built more than 10,000 cars, said IHS Automotive senior analyst Stephanie Brinley. Renault/Nissan, she said, has led the pack since 2011. More than 167,000 Renault and Nissan EVs were built in 2014 and 2015.

“Regardless of the enthusiasm of the Model 3 and the level of interest — which is strong — there still are, on a broader level, obstacles to EV ownership,” Brinley said. “It’s still cost, it’s still range and it’s still infrastructure.”

Brinley cautions against using the reservations for the Tesla Model 3 as a barometer for long-term demand for electric cars. All-electric cars are expected to represent only about 2 percent of vehicles produced globally by 2025.

“Once you get past this initial outpouring, it’s really hard to say that’s indicative of long-term demand for Tesla Model 3, much less EVs in general,” she said.

Tesla is expected to face more competition in the all-electric space in the coming years from already-established automakers such as Hyundai Motor Co. with the recently unveiled Ioniq and General Motors Co. with the Chevrolet Bolt.

GM expects to begin producing the Bolt late this year. Ordering for the car has not started. The company has not had major sales success with its “halo” green offering, the plug-in hybrid Chevrolet Volt. GM has sold fewer than 100,000 Volts in the United States since December 2010.

Pressure to deliver

Brinley and other industry experts say the buzz surrounding the Model 3 puts more pressure on Tesla to actually deliver the car on time and as promised. Musk has said the car will be available in late 2017.

“Tesla deserves a lot of kudos to get this kind of reaction, there’s no doubt about that,” Brinley said. “But now they’ve got to build it.”

The Model 3 marks Tesla’s first foray into the mainstream market. Its current vehicles — the $70,000-plus Model S luxury sedan and $80,000-$144,000 Model X SUV — both were delayed by the company.

“Now comes the hard part — delivering the car,” said Autotrader.com senior analyst Michelle Krebs. “Meantime, Tesla must manage expectations of those customers who plunked down deposits regarding the car’s actual arrival on the market and the delivery to driveways of those who placed orders.

After the financial markets closed Monday, Tesla reported it shipped 14,820 vehicles in the first quarter of 2016, fewer than the 16,000 it had forecast in February.

The company blamed the missed expectations on supplier parts shortages and “hubris in adding far too much technology to the Model X in version 1.”

The company’s stock had closed up 4 percent to $246.99 per share.

After the news of the missed forecast, shares dropped 4 percent Monday evening in after-hours trading.

Even if a majority of the reservations turn into actual sales, analysts speculate it could take Tesla years to fill the order.

The company aims to produce 500,000 vehicles by 2020 — a feat many don’t believe is possible given its current production capacity, investments and personnel.

“We note that Tesla’s estimates appear to put the Model 3 among the top 3 percent of global vehicles by sales volume, which is an optimistic forecast,” wrote Bank of America Merrill Lynch auto analyst John Murphy in a Friday note to investors.

Tesla’s production expectations by 2020 are three times the number estimated from Wall Street and other industry onlookers.

The large number of Model 3 reservations also makes it likely that many buyers won’t get a $7,500 U.S. electric car tax credit. The credit phases out when a manufacturer hits 200,000 in U.S. sales. Tesla won’t say how many of the orders came from the U.S.

A big splash

Tesla’s new Model 3 was unveiled to great fanfare Thursday night in California. The all-electric sedan will start at $35,000 before federal and state incentives. Tesla says the car will have a range of 215 miles per charge and accelerate from 0 to 60 miles per hour in less than six seconds.

Musk said in tweets that Model 3 steering controls will feel like a spaceship. He also said it will be a rear-wheel drive car with optional all-wheel drive.

Reserving a Model 3, Musk tweeted, gives customers priority in their geographic region. So even though total count is high, “ordering early will make a big difference locally.”

According to the Tesla reservation agreement, the fully refundable $1,000 reservation does not constitute the purchase or order of a car. Once Model 3 production begins, those who reserved a car will receive a purchase agreement indicating the purchase price of the vehicle and other details. Once the agreement is submitted, the money reservation amount will be applied to the order.

Tesla continues to face restrictions on where it can open stores to sell its cars. Several states, including Michigan, have outlawed its direct-sales model.

In October, Tesla applied for licenses to sell and service its electric vehicles in Michigan, even though Gov. Rick Snyder signed legislation in late 2014 that bans the company’s business model of directly selling cars to customers.

Michigan Secretary of State spokesman Fred Woodhams on Monday told The News that the applications remain under review while the state requests additional information.

mwayland@detroitnews.com

(313) 222-2504

Associated Press contributed.