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.