Tesla’s low-cost new model, under a drape in a graphic about the cost of its power train being just … [+]
Tesla’s “Investor Day” caused much disappointment — even tanking Tesla stock for a day — because there was no big announcement as expected, notably of their new low-cost, next generation vehicle. However, they actually let out a number of important details abut the vehicle, most of what you need to know — other than when you will be able to buy it.
Tesla’s name is probably not “Model 2.” The Model 3 should have been the Model E to spell out “SEXY” but others have claimed the name “Model E.”
While there were times when, in theory, you could get a Model 3 for $35,000, today the base model is $43,000. Tesla tells you on their web site that this is “really” around $29,000 in California after the tax credits and gas savings. They don’t include maintenance savings in that.
Tesla web site describes cost of Model 3 with 6 years of gas savings
Tesla later put up a slide outlining the total cost of ownership of the new model car over 5 years, compared to a Corolla and a Model 3.
Tesla side on cost of 3 cars
They already believe that a Model 3 is cheaper to own than a Corolla, but it has a higher up-front cost and lower operating cost.
On this chart we can see that Tesla has stated they expect the total cost of ownership over the first 60,000 miles (5 years) will be precisely 71% of that for the Model 3. That includes about $2,000 of electricity and very little maintenance — probably 1.5 to 2 sets of tires at $800 each and some other very minor items. These should not differ very much between the cars, though the smaller model may be a bit lighter and use less expensive tires. The other major costs will be registration fees, insurance and most of all, depreciation.
Now, for Tesla to have the Model 3 beat the Corolla, they are not using the methodology of major sites like Edmunds and Kelly Blue Book. Tesla’s 2021 Impact Report shows an estimate of around 63 cents/mile. You will note that for the Tesla, depreciation (which is a function of vehicle price and lifetime) is a much larger proportion of the total cost than it is for the gasoline cars. The main way to cut TCO is to cut the sticker price. Here’s Tesla’s breakdown from that Impact report on Model 3 in 2021.
Tesla’s chart of total cost of ownership from 2021 Impact Report
However, this report is for the Model 3 at a similar price, and without the federal $7500 tax credit. (The price in 2021 ranged from $39K to $43K by the end of the year when the report was written.) Some components of insurance do vary with the value of the car as well. So we can roughly say that about 66% of the TCO after rebates is based on the cost of the car, though different cars may depreciate at different rates so we can’t be exact.
As such a rough back-of-envelope calculation suggests that for TCO to drop to 71% we will see the after-credit price be 60.5% of the Model 3 after-credit price, and thus should see a sticker price of the car around $29,000 — a bit above the commonly suggested $25K price. (Update: This article previously estimated via a different calculation at around $26,000 but the $29K figure is probably more accurate due to the effect of credits. If Tesla has used state credits in their calculation this would alter it further.)
Of course, when you knock $7,500 in federal credits and state credits — $2,000 in California and up to $5,000 in Colorado — you’re looking at $16,700 plus fees out the door in Colorado for a new Tesla economy model. A model which also costs you half as much to operate. It’s hard to see any cost-conscious entry level car buyer going for today’s gasoline car prices.
Of course, while Tesla forecast a price of $35,000 for the Model 3, it didn’t really deliver on that, offering a car at that price for only a short time. (It’s also possible Tesla has made their chart above with the Model 3 having no incentives and the new model getting all of them, but that would be strange.) So it’s possible that the cost forecast in their chart above will not be delivered on. But anything in this range will be game changing.
At this price, it’s going to suck, right? After all, the base Chevy Bolt is below this price range, but doesn’t compare to a Model 3, which far outsells it even at a much higher price. The new car may not have the 270 mile range of a Model 3, but it probably will be close, using LFP batteries which have a very long life, and with which you can more easily use the full 100% of the range. With Lithium Nickel batteries found in the higher end cars, you try to only rarely charge the car up to 100%, though you can do it if you need it. With fast chargers every 50 miles on main highways, and charging at home, the extra range may matter less in this class of car.
All through the presentation, Tesla emphasized their manufacturing philosophy — make it cheaper and better at the same time. They have not always delivered on that — for example when they removed ultrasonic sensors to save cost they took out parking assist — but they claim it will return soon.
All of Tesla’s efforts are to make the car a computer. The more of the car that is a computer, the more it runs on the economics of electronics — which means getting better and cheaper at the same time, and not just a little, but by leaps and bounds.
Tesla is also applying this Silicon Valley philosophy to its manufacturing and design, and seems to be pulling it off.
At the top, you can also see how they predict they will make the entire power train of this car for around $1,000. At that price, plus battery pack, they may be able to make cars that are much cheaper than $29,000 for special needs.
We can predict Tesla’s new model will actually not be much worse than the original Model 3, and the Model 3 will probably get better to justify its higher price. Some things will get a bit cheaper, especially things Tesla doesn’t make, like upholstery, finish, tires and maybe sound deadening. It won’t feel like a luxury interior, but you won’t expect it to. The shape will remain similar, as required by physics. If it is not available in two-motor 4WD, the space of the front motor will make up for storage lost to that in the Model 3.
You’ll have a similar screen — perhaps a bit smaller — and a similar clean dashboard. They will probably remove more physical buttons, and motorized seat adjustments on the passenger seat — but in general they prefer anything that can get software control and be made in quality. You probably won’t get a transmission stalk, which they already took out of the high end cars. They may not make it have the same hardware pack they believe will be needed for FSD called HW4 — they may pull some of the cameras, but also leave room to upgrade those later or make these things in a higher trim level to keep the base price low.
A lot of the fancy features will be there in software. Software doesn’t cost anything to reproduce, but it costs money to write. Tesla plans to make money in its more expensive cars by giving you fancier software, not fancier hardware.
Today, you can pay $500 or $2500 for different laptop computers, of $200 or $1,000 for different phones. Those devices don’t differ in capability by the 5:1 ratio, in fact in many cases the cheaper device does a large fraction of what the fancy one does. Tesla will make cars work like that too. Think Apple, which sells the same hardware as others for higher prices by making the software that customers want more.
Of course, the greatly superior charging network will work for you no matter what Tesla model you buy, and right now it’s one of the prime reasons to buy a Tesla.
The breakdown of the global auto fleet, expressed in Tesla’s vehicle categories
Here Tesla tells us they expect the global vehicle fleet (not just Teslas) to have 700 million cars in the class of the new platform cars, along with 380M higher end sedans and 40M luxury sedans. They also forecast 300M of the “working” vehicle class, combining pickup trucks like the CyberTruck and vans — with their van under a drape. So a van seems definitely in the plans.
Will this be a commercial van for delivery and work, or a minivan for families? Or a van-style taxi for their dedicated robotaxi as they’ve hinted? That they didn’t say. But that’s what’s next along with the entry-level Tesla.
Pre-orders are not yet available. But we know its cost, roughly what it will look like, and what features it will have. The y also announced it will be built in a new factory in Mexico, though that doesn’t much affect what the car will be if you buy it.
You can see a YouTube livestream where I discuss many other revelations from the Tesla Investor day, made just after the event:
Disclosure:
The author owns shares in TSLA and XPEV, an electric mini-car firm and his consulting clients include an EV-making car OEM.