Elon Musk's Great Model 3 Bait and Switch

The Tesla Model 3 was supposed to be the "entry-level" electric vehicle for the middle class, that "made it up in volume": leading up to the release of the Model 3, it was positioned as the people's EV that everybody could afford and that, once mass produced, would help Tesla generate cash and profits consistently. The car's relatively modest $35,000 price tag was heralded as one of its key selling points, low enough that Tesla could generate the volume needed to gain operating leverage from selling it to the masses. 

But as Elon Musk himself admitted this weekend on Twitter, selling a $35,000 Model 3 right now would cause Tesla to "lose money and die". 

So, instead of selling this mass-market vehicle, Tesla has focused on selling a more expensive version of the vehicle. A much, much more expensive version, in fact more than double the base price... and, if Elon Musk's Tweets this weekend are any indication, Tesla doesn’t have any near-term plans to start selling the vehicle at anything close to the $35,000 price tag that was initially promised anytime soon.

Instead, Musk was busy introducing yet another high priced variation of the Model 3, this time the dual motor, all wheel drive Model 3 that could run a price tag of just under $80,000.

As Bloomberg details, " Musk unveiled specifications for a faster and more powerful version of the Model 3 in a series of tweets over the weekend. It will cost $78,000, more than double the $35,000 base-model starting price discussed into the run-up before the electric car’s deliveries started last year. And that doesn’t include the Autopilot driver-assist feature."

The increasingly expensive configurations for the Model 3 are planned steps, if somewhat counterintuitive ones, toward Musk’s vision of Tesla Inc.as a mass-production player with vehicles affordable to a broader swath of buyers. The $78,000 sticker puts the electric sedan beyond reach of many consumers, and, by Musk’s own estimations, brings it closer to the realm of luxury cars.

Ever since the Model 3 has started being delivered, the price tag has done nothing but drift higher, fueling critics who have stated that the $35,000 price point once touted would not be achievable. Bloomberg continues: 

When Model 3 deliveries started in July, Tesla described the $35,000 price for a Model 3 with a standard battery with a 220-mile range before options or incentives. But its focus was on fulfilling orders for customers who wanted longer-range battery packs with faster charging, pushing the price up to about $44,000.

Tesla said in February a dual motor version would come at midyear and a standard battery pack would be available in late 2018. In a letter to shareholders earlier this month, Musk said that the company would begin offering new options such as all-wheel drive -- and a base model with a standard-sized battery pack -- once his factory in Fremont, California, reaches a production rate of 5,000 cars a week.

Only the expensive performance model was mentioned in Musk’s tweets this weekend. The company’s current business model and financial position -- it’s operating at a loss and has negative operating cash flow -- mean “that this is not the time for a $35,000 Model 3,” Tynan said in emailed comments.

And now, we have Elon Musk touting his new $78,000 model on Twitter, even stating that the price point was about that of a BMW M3. As Bloomberg notes, however, "a BMW M3 sedan has a starting manufacturer’s suggested retail price of about $66,500". Also, M3s are not exactly everyday cars for your average motorist. In fact, quite the opposite.

More bad news: Bloomberg cite an analyst who predicted that those waiting for a plain old, boring, boneheaded, and very much uncool base model of the Model 3 would likely have to wait for years.

The pricey version of the Model 3 is in keeping with Musk’s earlier practices with the Model S luxury sedan and Model X sport utility vehicle -- adding options and higher specifications to help generate cash that can be used to eventually build vehicles for mainstream buyers.

Shipping a minimum-cost Model 3 right away “would cause Tesla to lose money and die,” Musk said on Twitter. The company needs three to six months after achieving production of 5,000 units a week before it can ship a $35,000 Model 3 and survive, he said.

...

The profit is in the higher trims, Ivan Drury, senior manager of industry analysis at Edmunds.com, said by phone. “The idea that it’s supposed to be a car for everyone is kind of laughable,” Drury said. “Anyone who wanted a base model may have to wait years out.”

But wait, it gets worse: because aside from not getting the price point for the car that they were promised, potential Tesla customers also have another reason to give their Tesla purchase a second thought: insurance.

In an article published over the weekend by Clean Technica, the author details how a small dent in a front left fender of a Tesla - caused by hitting a parking sign that the car's cameras also somehow missed - ultimately cost the shocked owner nearly $7,000 to fix and replace. The author of the blog was stunned by the price tag:

I decided to file a claim and asked the body shop folks to coordinate the repair with my insurance company. After a few days without any meaningful updates, I asked my insurance company (Liberty Mutual) what was the hold-up. The claims specialist told me, “Well the shop’s estimate was a bit higher than we expected.” How much higher? “Nearly $7,000, of which $5,000 was labor.” I had heard that the Model S was expensive to fix, mostly due to its all aluminum construction. But the Model 3’s “simple design” and the planned use of steel over aluminum where possible was supposed to make things like this less complicated (and less costly). It turns out that there is still quite a bit of aluminum in the Model 3, as you can read about in articles like this one.

And the cherry on top: to replace the fender on the vehicle, there was a significant amount of the car's body that needed to be removed, racking up thousands of dollars in labor charges:

But more complicated and labor-intensive than the painting is the “R&I” — short for “Removal and Installation.” To repair this fender apparently requires removal and reassembly of much of the left side of the car, including all of the trim pieces, moldings, and the driver’s mirror, as well as the front bumper. And when you reinstall the front bumper, you also have to “aim” (re-calibrate) the front distance sensor. The repair also required disassembly of the rear seats in order to access (and disconnect) the high-voltage battery connectors. Apparently, they do this so as not to electrocute the folks working on the car (always nice to not kill anyone).

The insurance company balked at the estimate and sent their own adjuster. So a few days later, I got the news: the second adjuster’s estimate was not far off from the shop’s own appraisal. It was around $6,250 — about $500 lower than the original appraisal. So the insurance company approved the repair, and I had to wait a few more days for the shop to finish the work.

We can only guess that if baseline Model 3 orders ever do ship, customers will be equally as shocked by what should be soaring insurance costs, given the extensive amount of labor and cost involved with making such a small repair, for a company which was all about rolling out the next big thing while support and maintenance was only a casual  afterthought.

We also assume that Tesla will still be solvent by the time Tesla gets to shipping out the baseline Model 3 which in light of recent developments, is a very bold assumption.

Comments

FireBrander Mon, 05/21/2018 - 10:14 Permalink

replace the fender

?????

It's a TINY dent FFS! 

Grind off the paint...Bondo...sand, smooth, prime...and paint the SOB...$200 tops!

Why in the hell do you have to replace the fender? Traditional body repair not possible? BS.

World has gone full fucking retard.

philipat BaBaBouy Mon, 05/21/2018 - 11:19 Permalink

Of course, coming soon is another request to USG for yet more "subsidies". Because burning cars are so imprtant despite the new BMW electric being available at $54 per month (At a loss of $ 36K per vehicle)?

I mean for fuck sake, if manufacturers want to lose money on electric cars, that's OK with me but don't subsidise their losses?

But as one of the chosen, he will probably get away with it. Again!! Disgusting..

In reply to by BaBaBouy

MillionDollarBonus_ philipat Mon, 05/21/2018 - 11:26 Permalink

Elon Musk is paving the way for self-driving cars. I support driverless cars on condition that they are monitored and controlled by accredited companies like Google, Apple and Uber, who provide back doors into their systems for the NSA. This will allow the government and key corporations to know where everyone is at all times, to make sure they’re safe, and allow them to intervene if necessary to steer the car in a different direction, maybe accidentally into a ditch or off a cliff if the driver happens to be an alt right terrorist. We also need to install microphones and cameras into all of the cars to enable handy voice and facial recognition features, which has the side benefit of allowing the companies to collect thousands of hours of audio and camera footage. Maybe with advanced CGI and sound technology we could even add a few extra details into the footage to make legal cases a bit easier to settle. Just think of the possibilities!

 

HOW I GOT RICH BY FOLLOWING THE CROWD

In reply to by philipat

jcaz MillionDollarBonus_ Mon, 05/21/2018 - 11:31 Permalink

Good plan.   There is a market of about 12 people on Earth who are capable and stupid enough to pay $78K for a Type 3.   

Wile E Coyote,  Super Genius........

"Here's our new marketing plan- call all the 450,000 people who gave us a deposit for a $35K car and up-sell them to the $78K car......"  He's prolly already calculated a retention rate in his head and sold it to the next round of financing....  Maybe he'll throw in a time-share to Mars, too.

In reply to by MillionDollarBonus_

any_mouse Citxmech Mon, 05/21/2018 - 14:51 Permalink

Musk publicly priced the car before knowing how much it would cost to produce.

Schmott Guy that Musk is.

Bait and Switch is a standard auto industry tactic.

Dealers rarely stocked the base level vehicle with the advertised price. That is why a specific stock # has to appear in  advertisements. Salesmen, being basically sleazeballs, will first show you the higher priced vehicles. Commissions are percentages.

Ads prominently showing a low weekly or monthly payment, only mentioning the finance terms in tiny print at the bottom of the page.

In reply to by Citxmech

JoJo Kracko philipat Mon, 05/21/2018 - 13:43 Permalink

Who is subsidizing BMW's losses on those cars?  How much do those cheap Beemers retail for?   $50k?  (total guess)

 

$50,000 / $54/mo = 926 months  / 12 = 77 years.    Are they being offered on a MASSIVELY LONG LEASE to get the $54/month rate?

 

Hell even if they retail for as little as $25k, you are still looking at over 38 years to pay it off - with zero percent interest rates.

In reply to by philipat

snblitz JoJo Kracko Mon, 05/21/2018 - 15:43 Permalink

My guess is that the low lease has to do with the pollution credits.  BMW gets a $2500 to $20000 credit (it is actually quite hard to determine the real $ value of the credit) for each one sold that they use to offset fees related to their non-electric vehicles.

So the $54 lease is being paid for by owners of gas or diesel engine BMWs.

The funny thing is, while diesel and gas owners are subsidizing the electric vehicles (EVs), the diesels and gas actually burn less fossil fuel per mile and the diesel produces less pollution than the EVs.

https://www.finitespaces.com/2018/02/14/electric-cars-use-twice-as-much-oil-as-diesel-vehicles/

The oil companies and foreign oil producers are laughing all the way to the bank.

In reply to by JoJo Kracko

JoJo Kracko BaBaBouy Mon, 05/21/2018 - 13:37 Permalink

Didn't they say $78,000?   11 small dents in the Mod-3 you can buy now is worth the Entire Price of 'Da CAR'.

 

I had super high hopes for Tesla.   Not for the ability to buy a screaming fast battery powered car, but for speeding up the eventual home solar plus home battery plus cheap electric car trifecta that will eventually let many of us move off the grid much more cheaply than it is possible to do so today.

 

It can still be done now, but not without that hoped for seamless integration.   Plus the prices are still outrageous.

In reply to by BaBaBouy

glenlloyd RafterManFMJ Mon, 05/21/2018 - 12:37 Permalink

Actually it wouldn't even require any filler to fix that, you can straighten the metal the old school way.

Still think a Tesla, or any autonomous alternative, is really a solution looking for a problem. That is unless you endorse burning up people trapped in cars.

The market is not demanding alternative fuel cars, nor are they demanding self-driving cars. Unfortunately some morons somewhere have visions of a "Minority Report" future of driving and want it here ASAP.

This is just more wasted spending. People will lose millions when this falls apart.

In reply to by RafterManFMJ

JoJo Kracko RafterManFMJ Mon, 05/21/2018 - 13:55 Permalink

So I assume you are one of the 'smart' people shorting the stock and not one of the 'dumb' people long the stock?

 

I'm neither FWIW.

 

At least it has one positive.   It got all of the other auto manufacturers looking into electric power sooner than they would have on their own.    It is the future after all.   A propulsion system that is more energy efficient, far cheaper to service (when in mass production), better for the environment (strictly from a motor perspective - better than gas or diesel), but still needing a better, low cost, safer method of storing the electricity than the current battery tech.    However, this last one, while a definite problem, does have several alternative storage methods in development right now that are probably less than five years from production.

 

Sadly for Tesla, I don't know if they will find enough people or governments willing to throw money at them to keep them in business long enough for them to start turning a profit and becoming a solution instead of a problem.

In reply to by RafterManFMJ

juggalo1 FireBrander Mon, 05/21/2018 - 11:31 Permalink

I think his original strategy was pretty good.  Selling performance and aspiration as opposed to cost was why Tesla survived while Fisker and all the other POS electric auto makers failed.  However rather than trying to build out his own manufacturing he should have sold the company to an actual manufacturer, and let them figure out how to build a mass model.

In reply to by FireBrander

gatorengineer remain calm Mon, 05/21/2018 - 12:21 Permalink

".. The country is in moral and intellectual decay and no one cares. Someone explain how this is good for our country?"

 

You are absolutely correct.  HOWEVER, without this type of Palliative care, people would be more inclined to notice how crappy things really are, and then the problems would start, as long as the sheep are entertained, it buys the .01% more time....  Thats really all its about now is postponing the end game.  Thats Musk, Qanon, Trumps Tweets, etc.... A giant Look a Squirrel  

In reply to by remain calm

LightBeamCowboy Looney Mon, 05/21/2018 - 13:27 Permalink

Looney, do you have a block against projecting current trends into the future? Autonomous military killer robots haven't even begun to be used, but AI technology being used for just that is as serious as a heart attack. The moment I saw Boston Robotics' "Big Dog" pick up a 35 lb cinder block and throw it over its shoulder I could see that mounting a belt-fed machine gun to that same arm, with a video camera feed to AI software that recognized and terminated humans was not even a technological hop-skip-and-jump. It can be done tomorrow by anyone evil enough to think it's a good idea, and the world is full of people that evil. AI, for the first time in history, allows psychopathic leaders to get around the problem of there not being enough psychopaths to hire to do as much evil as the leaders desire. With AI, evil is now unlimited.

In reply to by Looney

snblitz Buckaroo Banzai Mon, 05/21/2018 - 16:02 Permalink

My father worked on the Saturn V and the Space Shuttle.

He told me designing new rocket motors for the Space Shuttle was a colossal waste of money when one could simply adapt the Saturn V motor.  He also told me the new Morton-Thiokol boosters were designed with a 0.01 expected failure rate.

That is 1 failure per 100 flights, and the Space Shuttle used two, so they actually got lucky.

In reply to by Buckaroo Banzai

snblitz Buckaroo Banzai Mon, 05/21/2018 - 18:09 Permalink

My father worked on the Saturn V and the Space Shuttle.

He told me designing new rocket motors for the Space Shuttle was a colossal waste of money when one could simply adapt the Saturn V motor.  He also told me the new Morton-Thiokol boosters were designed with a 0.01 expected failure rate.

That is 1 failure per 100 flights, and the Space Shuttle used two, so they actually got lucky.

In reply to by Buckaroo Banzai

zippedydoodah FiendNCheeses Mon, 05/21/2018 - 13:57 Permalink

Car insurance.

Maybe the US is retarded (imagine that) and that insurance companies don't actually risk assess the vehicles that they insure.

In the UK, the Model S and Model X are in the highest possible class of insurance, what we call "Insurance group 50". The insurance costs are as expensive that you can possibly get. The cost would be the same as any Supercar that you can name. Like any model of Ferrari, Lamborghini, Bugatti, McLaren, Bentley etc.

Given the ridiculous cost of repairing a slighted dented wing on a Model 3 of $7000, the car is fucked in the UK. Unless the buyer has bottomless pockets.

Aslet.

In reply to by FiendNCheeses

gregga777 SloMoe Mon, 05/21/2018 - 10:43 Permalink

Soichiro Honda didn't start out making luxury Acura automobiles just after World War 2. He began making motorized bicycles with 50cc engines. Honda automobiles were years away in the future. Acura was 40 years away in the future. 

 

Henry Ford didn't jump right into making luxury Lincoln automobiles. He finally succeeded after several tries making the Model T for a mass market. Lincoln automobiles were years away in the future. Ford now makes 15,000 of their cash cow F-150 trucks per week!

 

Ford was focused on producing so many Model T's as quickly as possible that the paint drying time was a significant production bottleneck. Since black paint dried the fastest all Model T's were painted black. 

 

On the other hand, Elon Musk started out making luxury vehicles for a tiny niche market. Now Tesla is trying to manufacture larger numbers of Model 3's (versus earlier models) and is having lots of trouble ramping up to 2,000 per week. The original price target of $35,000 has been abandoned for an $80,000 fully loaded version. How many of those $1,000 down pre-orders are going to be canceled because of that?

 

High-volume manufacturers come down the learning much faster than their low-/lower-volume competitors. There may be some, but I don't know of any luxury goods maker that has ever successfully become a high-volume manufacturer. 

 

In reply to by SloMoe

NickelthroweR gregga777 Mon, 05/21/2018 - 11:42 Permalink

Word.  I manufacture boutique audio gear for the recording and broadcast industry.  Switching over from items made entirely by hand to factory production was the most challenging aspect of the entire venture.  Something that took me an entire day to fabricate and assemble had to be broken down to each movement and assigned a department.

Also, because I sell world wide, I didn't want people having to ship these very heavy items back and forth for repairs.  To solve this, I had to come up with a modular design that isolates expected wear and allows for the customer to simply replace a faulty module.  Also, vacuum tubes & operational amplifiers all live in milspec sockets so that they, too, can easily be replaced by the user.  Designated and easy to get to calibration points also allow for the customer to easily calibrate his unit.

A person with nothing more than a Phillips screwdriver can troubleshoot, repair and calibrate the items I build.

If a dummy like me can figure all that out all on his own then why can't Tesla?

In reply to by gregga777

snblitz NickelthroweR Mon, 05/21/2018 - 15:49 Permalink

They are not dummies. It is intentional.

GM gets 1/3rd of its revenue from repairs.

Read 'The Waste Makers' written in 1960.

Ask yourself why Ford used one single oil filter, the PH-1, on all engines prior to the mid 1980s, and then switched to making a different model oil filter for every engine.

Go down to your local auto shop and ask for the box the PH-1 comes in, look at the application list on the back.  It will say something like 'ford pre-1981 all'

In reply to by NickelthroweR

NurseRatched SloMoe Mon, 05/21/2018 - 10:55 Permalink

When Musk says he needs "Three to Six Months" for the $35K Model 3, he really means "There will never be a $35K Model 3 produced in any real numbers".

Is that "bait and switch"?    Since over 75% of the original depositors wanted the basic model which will never be built, when will Tesla announce that they have processed a quarter-million refunds?

In reply to by SloMoe