The Model 3 is by far the cheapest car Tesla has ever produced. A new report published Tuesday sheds some light on how CEO Elon Musk reached the magic $35,000 figure without sacrificing the headline features that make Tesla famous, like semi-autonomous driving and high range per charge.
The secret? A smaller-than-usual battery.
Electrek reports that at a Goldman Sachs-hosted event on Monday, Musk revealed the Model 3 comes in two flavors of battery: a 50 kilowatt-hour pack for the base model, and a 75 kilowatt-hour pack for the long range model that costs $9,000 more. Until now, Tesla has only referred to the two models by the 220 and 310 miles they respectively drive before needing a recharge.
The figure is impressive, and confirms previous reports that Tesla plans to include a battery smaller than 60 kWh in the base model. The Model S, by comparison, starts at $68,000 for a 75kWh battery that runs for 249 miles. The battery is one of the most expensive components of an electric car, and Tesla needed to bring prices down to meet its profit goals.
Musk previously stated that the Model 3 will generate $20 billion revenue with $5 billion gross profit, which equates to a margin of around 25 percent on every Model 3 sold. With the cheapest model, that amounts to approximately $26,250 left for production, leaving little wiggle room for component costs. Tesla previous stated its battery packs cost below $190 per kWh, and its long term plan is to reach below $100 by the end of the decade, placing the 50kWh pack at somewhere around $9,500 to $5,000.
To make these battery sizes competitive with larger vehicles, Tesla has taken a number of steps. The Model 3 is a 20 percent smaller car than the Model S, which helps with using less battery to achieve the same distances. The car also uses a partial aluminum frame that offers both a lightweight package and a reduction in material costs. It also has a low drag coefficient, meaning it moves through the air with less resistance to drive for longer.
Although Tesla has made cost savings with the Model 3, Musk has stated before his ambition to “anti-sell” the vehicle and encourage buyers to opt for the Model S or X instead. With that in mind, the company will be keen to stress the drawbacks to the Model 3 when discussing with consumers, but the $35,000 tag will have successfully drawn the buyer in.