Tesla’s big worry is people think the Model 3 will be better than it is

Sorry, not the deluxe version.
Sorry, not the deluxe version.
Image: Reuters/James Glover
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In its first quarter earnings released today, Tesla sought to reassure investors that, despite losing $397 million during the three month period, it’s well on its way to its goal of manufacturing 500,000 new Model 3 vehicles by 2018.

Tesla’s future is riding on the $35,000 electric vehicle, its first attempt at making a stylish EV for the middle-class and cementing electric mobility’s place in the mainstream. But there was a hitch Tesla felt compelled to warn investors about in the lead of its “outlook” section: people think the Model 3 will be far more luxurious than it really is.

We have seen a belief among some that the Model 3 is the newest and more advanced generation of Model S. This is not correct. Model S will always have more range, more acceleration, more power, more passenger cargo room, more displays (two), and more customization choices….We will continue to clearly communicate these distinctions to avoid any misperceptions.

This is a growing concern for Tesla. The company wrote in an April 1 blog post that it has been fielding questions from Model S owners about whether they should trade in their cars for a Model 3. It advised them that the more expensive Model S, which sells for between $68,000 and $159,000 for the deluxe version, has the “best driving experience.” Tesla CEO Elon Musk delivered the same message on Twitter this March.

Tamping down expectations has not been Musk’s mission in recent years, but the company’s Model 3 launch may dash a few.

Tesla reported revenue of $2.7 billion, more than double compare to a year earlier and above expectations. However, it still generated its second-largest quarterly loss. Tesla’s stock was down about 4% in after-hours trading.

In April, Tesla reported it delivered 25,000 vehicles (the Model S and Model X) in the first quarter, or about 2,000 vehicles per week. Once the Model 3 goes into production, it plans to produce 5,000 per week “at some point in 2017” and then 10,000 by 2018.

Correction: A previous version of this post misstated the total losses for the quarter. This has been corrected.