The Case for a $35,000 Long Range Model 3

Jul 24, 2020   

During the Q2 2020 Earnings Call, Tesla CEO Elon Musk shed some insight on Tesla’s plans for the future — which includes more affordable vehicles as well as a longer starting range.

For Tesla and the electric vehicle industry going forward, Musk stated that the new standard for EPA-rated range will be 300 miles. Consumers won’t expect less, as a range of 300 miles makes the vehicle usable for all utilities, including traveling uphill or continuous travel on a freeway at 70mph.

This new standard is evidenced by Tesla’s cancelation of the Model Y Standard Range configuration, which was cited as having under 250 miles of range. While this range rating was suitable for Model 3’s Standard Range configuration, it’s now considered to be unacceptable. Model Y Standard Range is being replaced by a Long Range Single Motor configuration; however, it will launch for around $5,000 more than the expected price for the Standard Range.

Tesla could discontinue the Standard Range Plus model and replace it with a ~ $40,000 Long Range Single Motor model (which we also find to be a possibility in the near future around the time that Model Y’s Long Range configuration is released). However, long-term this would go against Tesla’s mission to make electric vehicles as affordable and accessible as possible.

Most telling of all, Musk remarked that “what bugs me most is that Tesla’s vehicles aren’t affordable enough.” He would be content with continuing to pass cost savings on to consumers, even if that meant a 1-2% profit margin (which still goes beyond automotive industry standards). Simply put, Tesla’s vehicles will continue to get cheaper over time — Tesla’s mission goes beyond profit margins.

This makes the case that Tesla will want to ultimately keep Model 3’s starting price at or around $35,000, with a range that is deemed acceptable following Tesla’s new standards.

Tesla has done the same with Model S and Model X, discontinuing their Standard Range configurations while still increasing value and range over time. Tesla has been updating the range on its vehicles as often as possible, with Model S achieving a range rating of 402 miles — even while maintaining a starting price of $74,990 (which includes all premium upgrades). That leaves Model S and Model X with a Long Range Plus model that’s offered alongside a Performance configuration.

It would make sense for Tesla to eventually follow suit with the rest of its lineup, replacing the Standard Range and Standard Range Plus Model 3 with a new Long Range Single Motor configuration that exceeds 300 miles of EPA range. We could speculate that this would be offered alongside a “Long Range Plus” configuration with over 400 miles of range. (With even more room for improvement in the future as battery density improves and cost decreases.)

Based on those comments, we think a $35,000 Long Range Model 3 may be imminent at some point in the next 2-3 years. (Or the Standard Range Plus model may be replaced with a new Long Range configuration that’s under $40,000, and subsequently drop in price over time.)

Ultimately Tesla’s vehicles will continue to become more affordable while offering more range, which is good news for all. We expect this to happen as soon as it’s economically feasible with Model 3 and Model Y, which Musk said have a “long road ahead of them.”

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