Model 3 Pre-order is a Nice Marketing Move for Tesla

On March 31th, Tesla Motors started to accept pre-orders for Model 3 – its 215-mile, $35,000 entry-level luxury electric car in the make. People were lining up at the stores, waiting for hours to make a reservation, something quite unusual for car sales.  In the first 24 hours, the number of pre-orders reached 180 thousand. Then in 1 week, the number climbed up to 325 thousand. This is huge, considering, for the whole year of 2015, only 114,022 vehicles with a plug were sold in the US.

Larger than the pre-orders is that it gets Tesla enough attention – Model 3 topics are trending everywhere; people are tracking the numbers; news all over place etc. Everybody seems to get hyped about the concept car.

The reason I say this is that, if you think about it, the pre-order has little to do with the commitment of eventually owning a Model 3.

The $1,000 reservation fee is totally refundable at any time before one actually orders the car. So there is little commitment from potential buyers who put in $1,000. The refundability makes the decision on pre-order very easy – it is like “I might be interested in getting a Model 3. Let me just put $1,000 for now. If I change my mind, I just ask for my money back.”

One argument for the necessity of pre-order is that it can make the buyer eligible for government incentives. One such incentive is the federal tax credit of up to $7,500 in the US (And Tesla sales in the US does account for more than 50% of its total sales in the past). The caveat is that this tax credit is applied to only the first 200,000 electric cars sold by Tesla in the US. Considering 60k+ of those have gone to Model S already so far already, if your pre-order number is over 200 thousand, the chance for your to claim the full amount of tax credit is very slim.

However, afterwards, buyers may still be able to get some tax credit during the “phase-out period” (half or quarter of $7,500 in the first 2 quarters and the next 2 quarters respectively). Then the question comes to how many cars Tesla can possibly manufacture during the “phase-out period”. Given the rate at which the number of pre-orders grows, the production capability needs to be boosted exponentially in order to help buyers get at least something for the federal government.

On the other hand, Model 3 is pretty much a concept car at the moment – meaning things can change over the next one and half years. One thing is related to the pricing. $35,000 for an entry-level luxury car with an expensive high energy battery feels a bit unreal. In comparison, the price for the not-so-luxury Chevy Bolt electric car with similar electro-range starts at $37,500.

Therefore, the pre-order event is a successful marketing move for Tesla to a large extent. The success is built on Tesla’s populated fan base. This makes even more sense since Tesla is known for using social media to promote instead of traditional advertising.

For the class of 200-mile electric cars, Chevy Bolt will start delivery later this year and the new-generation Nissan LEAF is targeting year 2018 (similar timeline as Model 3). Just with a concept car and this pre-order event, Model 3 nicely steals the thunder.

Battery Raw Materials Market Stays Hot in China

In December 2015, we wrote a story on the boom in battery demand for electric cars in China. 331,092 of new energy vehicles were sold there in 2015, which is almost 3 times plug-in hybrid sales (114,022 vehicles) in the US for the same year. In the first months of 2016, new energy vehicle sales in China reached 35.7 thousand units, or 270% of the sales in the same period of last year. Production capacity of several raw materials such as lithium hexafluorophosphate, lithium carbonate and separator could not match the demand. As a result, the price was driven several-fold higher. This trend continues into 2016.

Lithium carbonate (Li2CO3), the raw material for cathode materials and electrolyte, had seen the price more than doubled last year. In March, the salt was sold at as high as $27.8 thousand/ton (or 180 thousand yuan/ton), which is another 50% increase.

Thanks to the hot market, material suppliers are doing very well. For example, Tianqi, a major Li2CO3 supplier in China, expects over 8 times increase in profit in Q1 (around $43 million or 280 million yuan), as compared with the same period of last year. In February, Ganfeng, another major supplier in China, announced that it plans to raise $231 million (or 1.5 billion yuan) on stock market. The fund will be used to increase the investment on Mt Marion lithium project in Australia (200 thousand tons/year of spodumene), build a 18650 battery production line as well as build a 15 thousand tons/year Li2CO3 plant.

Same thing for lithium hexafluorophosphate (LiPF6), the salt in the electrolyte. The price was doubled last year already, to $40 thousand/ton (or 260 thousand yuan/ton). In March, the price increased by another 50% to $62 thousand/ton (or 400 thousand yuan/ton).

Do-Fluoride, which accounts for 30% of LiPF6 supply in China, expects a profit of $17 million (or 110 million yuan) in the first quarter of 2016, which is a 1200% increase as compared with the same period in 2015! The company will double its production capacity to 6000 tons by end of the year. The company supplies to BYD, Shanshan and Capchem.

Do-Fluoride also makes moves down the value chain. Its annual battery production is 100 million amp-hours currently (which will be expanded to 300 million amp-hours in 2 years). Customers of its batteries include Xindayang. Do-Fluoride also controls Hongxing Auto, making electric cars.

There is huge demand on separator materials as well. Mingzhu expects its Q1 profit to increase by 200%-250% as compared with the same period in 2015. Its customers include BYD, LG, Wanxiang, ATL and Lishen. Recently, Mingzhu raised $109 million (or 708 million yuan) on stock market, mainly for building a 190 million m2/year production line.