Orders for the newly launched Tesla Model 3 have blown the projections away. In fact, no one even came close.
Before Elon Musk left the stage of Tesla’s design studio in California on Thursday night (March 31), the company’s CEO said 115,000 customers had made $1,000 deposits to buy the Model 3 once it’s ready for delivery (probably) at the end of 2017. By the next afternoon, the number of reservations had reached 232,000, exceeding analysts’ expectations for the entire year.
The deposits are refundable, but presuming they turn into sales, Tesla can look forward to at least $8.1 billion in revenue on its first mass-market vehicle.
Even Musk seemed surprised by the response.
Before the launch, analysts were questioning whether a $35,000 electric car could generate enough demand to satisfy Musk’s electric-car ambitions, which stretch well beyond the niche luxury market where Tesla has been hemmed in until now. “We are not aware of any auto product, or for that matter any consumer product, which has taken more than 100,000 orders with a $1,000 down payment; let alone a product that consumers will likely not receive for at least 18 months,” said George Galliers, an automotive analyst at the investment advisory firm Evercore.
Instead, lines formed around the blocks at dealerships around the world, and money rolled in online. Customers gave Tesla what is effectively a $232 million interest-free loan to fund its goal of selling 500,000 new Model 3s by the end of the decade, even as people wait years to receive them.
Electric cars are starting to look less like a segment of the car market, and more like the car market itself. As recently as last December, the Organization of the Petroleum Exporting Countries estimated sales of electric cars would reach only 1 million annually by 2040. Tesla appears to have captured at least 20% of that potential demand in a single night. The Netherlands is now considering banning the sale of new gasoline and diesel cars by 2025, while California and Norway are eyeing similar targets for 2050.
Carmakers knew the time would would come when the internal combustion engine was no longer the default technology. It just seems the future may arrive sooner than anyone thought. That means fundamental assumptions about how fast the electric vehicle market will grow may need to change.
Tesla will surely try to claim credit for that shift. What Musk described at the debut of the Model 3 was intriguingly close to a no-compromise electric vehicle. The base Model 3 will accelerate from zero to 60mph in under six seconds and cruise for 215 miles without recharging. All models come standard with autopilot hardware, access to Tesla’s high-speed Supercharging network, and room for five adults. Buyers can also purchase more luxurious versions that go “much faster” at affordable prices.
GM’s Bolt hatchback will reach the market a full year sooner than the Model 3, and it’s been positioned as an affordable alternative to Tesla’s high-end styling. Yet Musk is aiming to erode even that advantage by pricing the Model 3 at $35,000 before incentives—a figure Bolt is only expected to undercut with federal rebates that expire in the next few years. Cairn Energy Research Advisors says the Model 3’s purported range, price, features, design, and performance mean Tesla will not face serious competition for at least five years.
All of this is still speculative. Tesla has a risky road to travel before it claims victory and actually puts a Model 3 in a customer’s hands. At the moment, the company is burning through billions of dollars and needs massive new cash infusions to survive. The money pouring in this week is no sure thing. Model 3 deposits could evaporate if Tesla runs into major manufacturing delays or defects. Musk has earned a reputation for delays and overly optimistic estimates that may come back to haunt him. Tesla also will face a serious bottleneck in the number of batteries it can build to power the cars, even after building the world’s largest battery factory, a “gigafactory” in the Nevada desert, an engineering feat in its own right.
Tesla has only made 110,000 cars in its lifetime. Companies like GM make 10 million cars every year. If Musk’s company is going to reach its 2020 goals and survive, it will need to learn how to build at a much larger scale—and for far less money—than it has in the past.