When it launches, the Model 3 will be the Tesla’s cheapest vehicle by some distance. It hasn’t been a smooth journey: Since Tesla launched the premium-range Roadster back in 2008, Elon Musk’s car company has long catered to customers who want luxury.
How Many Tesla Model 3 Preorders?
While Tesla hasn’t revealed how many $1,000 preorders it’s received for the Model 3, the most recent estimate in April 2016 puts the number around 400,000 Model 3 reservations. Assembling that many cars and delivering them on time represents the biggest challenge the company’s ever faced, and the company is making a significant number of moves to pull it off.
How Much Money Will Tesla Make on the Model 3?
Musk has said the Model 3 will generate $20 billion revenue with $5 billion gross profit. That means a margin of around 25 percent on every Model 3 sold. For the base-model, $35,000 car, that’s $26,250 going into production, with $8,750 off the top. With the Model S starting from $68,000, and the company posting gross margins around that percentage rate already, Tesla has set itself a big goal of making reductions.
Why the Tesla Model 3 is Relatively Cheap: Less Stuff
The company has made a number of cost-cutting measures to the Model 3. The car has half the wiring of a Model S, and only contains one computer and screen where the Model S has two. The Model 3 will also have fewer seats (lacking the seven-seat option of the Model S), less cargo space, and features like automatically extending door handles will be missing, Musk noted on Twitter. Performance-wise, it will have a lower range, slower acceleration, and less power.
The Model 3 isn’t the Model S. “Am noticing that many people think Model 3 is the “next version” of a Tesla, like iPhone 2 vs 3,” Musk clarified recently. “This is not true.”
In fact, the “Model 3 is just a smaller, more affordable version of Model S w less range & power & fewer features,” Musk posted his nearly 8.2 million Twitter followers. “Model S has more advanced technology.”
But the battery is where Tesla will see major savings, and they have plummeted in price. A January report by McKinsey & Company found that battery prices have dropped nearly 80 percent over the past seven years: in 2010, batteries cost around $1,000 per kilowatt-hour (kWh), but by the end of 2016, they reached around $227. By the end of the decade, prices are expected to dip below $190. (Now only if they could make them lighter.)