Tesla does end-run around states prohibiting direct car sales, and starts shipping $35k Model 3

The long-awaited $35,000 MSRP Tesla Model 3 now is available via the Tesla website. This is the affordable mass production electric car Tesla has promised for several years, and it is now available. But was Tesla satisfied solely to reach that milestone? Nope, the announcement contained a nugget that I think is even more important. Namely that Tesla will end sales of cars through Tesla Stores, that instead all Tesla Stores will transition to being information Galleries, and that instead all Tesla sales will happen via the Tesla website.

Tesla sales model until today

Ever since Tesla started selling the Tesla Model S in 2012 there has been a nagging legal issue about the sales process. In the USA and some other countries, automobile manufacturers are prohibited from selling cars direct to the public. Instead cars are required to be sold via independently owned dealerships. Supposedly this system was put in place after abuses by automakers many decades ago. But of course the automobile dealership system has its own abuses — there is a reason car salespeople have a stigma among society.

Tesla has long claimed that regular car dealerships are negatively incentivized against selling electric cars. First the bread-and-butter of regular car dealerships is the service departments. Since electric cars need very little maintenance the service department will see its business dry up, and the car dealership will prefer to not sell electric car to keep that side of the business running. Second, car dealerships have decades of experience in pushing engines and gasoline as the attractive feature, not electricity.

Therefore Tesla has insisted many times it cannot sell cars through regular car dealerships. Instead they have stuck with a model of direct car sales. But Tesla could only implement this model in a few states in the USA where state laws were loose enough to allow direct car sales. Several other USA states have stricter laws and Tesla was not able to work out any compromise.

I imagine there might be similar issues in other countries.

Until today the way Tesla sold its cars depended on local laws. In states permitting direct car sales, Tesla operated Tesla Stores which were often located in high traffic retail areas. You could go in, be informed, talk with sales people, and purchase cars. In other states Tesla used the phrase Tesla Gallery and operated the space as an information/education place where the employees would not talk about purchases but instead educate the public. Folks in those states who bought Tesla’s had to go to another state to make the actual purchase.

The new Tesla sales model

Today’s $35,000 Model 3 announcement said:

To achieve these prices while remaining financially sustainable, Tesla is shifting sales worldwide to online only. You can now buy a Tesla in North America via your phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund. Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free. With the highest consumer satisfaction score of any car on the road, we are confident you will want to keep your Model 3.

Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6% on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected. Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers. The important thing for customers in the United States to understand is that, with online sales, anyone in any state can quickly and easily buy a Tesla.

This is a Big Change, yet Tesla did not lead with this in its announcement. This is a completely different sales model, and it is claimed anyone in any USA state now has equal ability to buy a Tesla car.

Rather than take the traditional test drive at a dealership, you’re allowed a generous return policy (7 days or 1000 miles) for a full refund.

Doesn’t Tesla realize the irony of claiming to “achieve the $35,000 Model 3 price point earlier than we expected”? I expected Tesla to achieve this price point over a year ago. We are coming up on the 3 year anniversary of the day 200,000 or so of us stood in line, before the Tesla Model 3 unveiling party, to put down our $1000 deposit. We were brave in trusting that Elon Musk would deliver, and not all of us were ready to spend $60,000 on a luxury car when we had been promised a $35,000 everyman’s car.

In any case, implementing this new sales model is predicted to be a big cost saving to Tesla through which the company can achieve the profit margin level allowing them to FINALLY offer the $35,000 Tesla Model 3.

Reading between the lines — this means the folks employed at current Tesla Stores will lose their jobs, and some of the locations that have been Tesla Stores will shut down. As this process is undertaken, we will see hundreds or thousands of Tesla employees laid off.

The $35,000 Tesla Model 3

The standard model Tesla Model 3 — standard battery pack and non-premium interior: with 220 miles of range, a top speed of 130 mph and 0-60 mph acceleration of 5.6 seconds is now available at $35,000!

A somewhat upgraded Tesla Model 3: the Model 3 Standard Range Plus, which offers 240 miles of range, a top speed of 140 mph, 0-60 mph acceleration of just 5.3 seconds and most premium interior features at $37,000 before incentives. For 6% more money, you get 9% more range, more power, and an upgraded interior.

Software upgrades to the existing Tesla Model 3: These upgrades will increase the range of the Long Range Rear-Wheel Drive Model 3 to 325 miles, increase the top speed of Model 3 Performance to 162 mph, and add an average of approximately 5% peak power to all Model 3 vehicles.

Pricing in the Tesla online store for the Tesla Model 3. These prices are discounted over MSRP by a combination of tax incentives and various claimed advantages.

Don’t get too excited over the $24,600 base price. Tesla has for years pushed this idea that owning an electric car gives a combination of monetary and non-monetary advantages. The $24,600 price reflects those advantages. The so-called advantages are more than just the tax incentives, but include the claimed advantage of not having to stop at gas stations, or use of the HOV lane driving solo. Those advantages can be seen as potential economic gain which are included in the quoted price.

Evade blocked charging stations with one of these handy J1772 extension cords.

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The actual base price is $35,000 and goes up from there accordingly.

Tesla is still not offering the combination I would prefer — long range but with standard interior. And of course they’re not offering the car I want, which would be a hatchback with large cargo space.

Tesla Model 3, standard model, interior: Cloth seats etc.

I don’t know about you, but I feel myself being looked-down-upon by folks accustomed to selling luxury cars. To me cloth seats and basic audio is fine, but it feels like the website is sneering at me “eeeew cloth seats”. I rarely use the navigation system, and am happy using the navigation system in my phone.

I’m glad that the standard interior still has a center console.

Pricing for Tesla Model 3 autopilot, and the up-coming full self driving capabilities

The price for this option is the same irregardless of it being the base model or the premium model.

It is interesting that Tesla is still promising “full self driving” ability as a future feature. I think that if Tesla wasn’t ready to sell “full self driving” ability — they’ve offered this for almost 2 years now — they should not have had a price for it.

I wouldn’t call this “full self driving” since it is only for “driving on city streets”. What I would call “full self driving” is to program in a destination hundreds of miles away, then to go to sleep in the back seat while the car drives me there. Apparently Tesla is not ready to offer that ability.

Conclusion

At the same time as this announcement, Tesla is switching things around to start delivering Tesla Model 3’s to Europe. I had thought the introduction of the affordable Model 3 would have to wait for Tesla to clear out the backlog of European deliveries. Apparently that’s not the case.

All through this process Tesla has maintained that getting to selling the affordable Model 3 would require beefing up production to a sufficient level to allow Tesla to make a profit on the affordable model. By shifting the sales model around, if Tesla’s claims hold true, they are able to make those profit gains in another way?

In any case this is a new threshold for the electric car market. Tesla cars at this price point are within the reach of a much larger set of people than before. Tesla cars have been stereotyped as toys for uber-rich folks. But this will no longer be true.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

About David Herron

David Herron is a writer and software engineer living in Silicon Valley. He primarily writes about electric vehicles, clean energy systems, climate change, peak oil and related issues. When not writing he indulges in software projects and is sometimes employed as a software engineer. David has written for sites like PlugInCars and TorqueNews, and worked for companies like Sun Microsystems and Yahoo.

One Comment

  1. Thanks for the detailed and thoughtful article

    My concern is that, given that Tesla does not advertise, and given that the leap into the EV world is, truly, a big leap for a lot of people, there is not sufficient information for those not really paying attention (which is most people). Therefore, these people will need a great deal of painstaking hand-holding to make the EV leap, including a lot of stuff like test drives with salesmen, etc. Ironically, I think the people who’ve bought Teslas up to now are the easy crowd: they were the ones who sought out Tesla, who don’t mind being early adopters, and who can figure things out as they go — it is the next wave of buyers who will require deep sales support.

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