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Reservations for the Model 3 Exceed 2015 EV Sales in the US in One Day but Tesla's Targets are Surely Unrealistic

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According to a Tesla press release on April 7, “In the first 24 hours Model 3 received over 180,000 reservations, setting the record for the highest single-day sales of any product of any kind ever in world history.” This feat is incredibly impressive given that EV sales (BEV and PHEV sales combined) in the US stagnated at just 120,000 units for the whole of the year 2015. The performance figures, extended range, supercharging capability and proposed $35,000 sticker price of the Tesla 3, in conjunction with the brand’s strong equity, undoubtedly make the Model 3 a very compelling proposition. However, there are numerous reasons as to why it won’t necessarily kick off an EV revolution in the US, at least not to the extent that is purported, whereby Tesla is now aiming for sales of 500,000 cars a year already in 2018.

  1. The reported sales numbers are orders and not sales, most of which have been secured with $1000 deposits which can be refunded and are not a contractual obligation.
  2. It will be a gargantuan feat to expand Tesla’s production capacity to meet demand, especially as the gigafactory in Nevada that will produce the lithium ion batteries also needs to be operational in time for the vehicle’s planned launch late in 2017. However, discussions are also underway concerning an additional Tesla production facility in China.
  3. Bear in mind that Tesla’s Model S and recently launched Model X were both plagued with technical difficulties and suffered production delays as a result. Keeping the production schedule on track is likely to be even harder given the news circulating that Tesla’s head of production is set to leave the company.
  4. Nissan and Chevrolet have already released updated versions of their Leaf and Volt models with an extended range and BMW’s i3 and Ford’s Focus Electric will soon follow suit. Chevrolet is also launching its new Bolt EV in 2016 which similarly promises a range in excess of 200 miles. The Model 3 is thus facing stiffer competition by the time it comes to market and although it is a compelling proposition, it will predominantly cannibalise sales of competitor vehicles and not simply generate additional EV sales.
  5. Finally, on a similar note, Apple is planning its own electric vehicle, codenamed “Project Titan”, with production to be carried out by contract assembler Magna in Austria, Google has plans in the pipeline and even vacuum cleaner manufacturer Dyson has filed to produce an electric car. Although the plans of these three new automotive players are unclear and it’s far from certain that their offerings will compete with the Model 3, the point is the EV marketplace will become increasingly competitive.

The fact of the matter is that the Tesla Model 3 will not singlehandedly double EV sales in the US and beyond and achieve 500,000 sales for Tesla in 2018. However, along with the Apple electric car in particular, it will undoubtedly push the acceptance of electric vehicles, especially boosting their “cool factor” among millennials and we can certainly expect to see rapid growth in EV sales before the end of the decade. Another positive point to make of course is that oil prices still remain stubbornly low and if they return to $50 per barrel and, moreover, recover to $70 per barrel which is the general consensus, this will only make EVs more attractive. However, questions still remain over the development of the charging infrastructure which is required to overcome customer fears about being embarrassingly stranded in their Tesla or Apple simply because of a source of electricity to plug in to.

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