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Abu Dhabi, UAEMonday 17 December 2018

Tesla Model 3 a car for everyone? At $78,000, think again

Analysts say Model 3 with a $35,000 price will be the rarest of the rare and the idea it is mass market is not really justified

A Tesla Inc. Model 3 electric vehicle is displayed during the California Air Resources Board (CARB) 50th Anniversary Technology Symposium and Showcase in Riverside, California, U.S., on Thursday, May 17, 2018. The symposium highlights CARB's history of clean air leadership that has driven innovative solutions and made monumental improvements to Southern California's air quality. Photographer: Dania Maxwell/Bloomberg
A Tesla Inc. Model 3 electric vehicle is displayed during the California Air Resources Board (CARB) 50th Anniversary Technology Symposium and Showcase in Riverside, California, U.S., on Thursday, May 17, 2018. The symposium highlights CARB's history of clean air leadership that has driven innovative solutions and made monumental improvements to Southern California's air quality. Photographer: Dania Maxwell/Bloomberg

Elon Musk’s Model 3, once touted as Tesla’s $35,000 car for the masses, can now set a buyer back almost $80,000.

Mr 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 counter-intuitive ones, toward Mr Musk’s vision of Tesla as a mass-production player with vehicles affordable to a broader swath of buyers. The $78,000 sticker puts the electric saloon beyond reach of many consumers, and, by Mr Musk’s own estimations, brings it closer to the realm of luxury cars.

“A Model 3 with a $35,000 price will be the rarest of the rare,” said Kevin Tynan, a Bloomberg Intelligence analyst. “Perhaps the second most collectible Tesla ever, behind the one floating around in space.”

Mr Musk’s ventures have certainly taken flight, with Tesla raising $38 billion of equity and debt over its lifetime. Brendan Smialowski/AFP
Elon Muskhas announced a luxury-end approach to the Model 3. Brendan Smialowski/AFP

Mr Musk’s latest tweets build the hype around a car that’s faced repeated production delays and manufacturing bottlenecks, which the company is just starting to clear. Tesla delivered 8,180 of the saloons in the first quarter, making it the best-selling electric car in America, and almost a half-million people have put down $1,000 deposits for Model 3s.

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 mid year and a standard battery pack would be available in late 2018. In a letter to shareholders earlier this month, Mr 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 Mr 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,” Mr Tynan said.

The new dual-motor, all-wheel-drive performance version of the Model 3 will have a top speed of 155 miles per hour, a 310-mile range and acceleration from standstill to 60 mph in 3.5 seconds, Mr Musk wrote.

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The latest performance Model 3 will cost “about same as BMW M3, but 15 per cent quicker & with better handling,” Mr Musk tweeted. The car “will beat anything in its class on the track”, he said. It will also be available with black and white interiors. According to BMW’s website, a BMW M3 saloon has a starting manufacturer’s suggested retail price of about $66,500.

The pricey version of the Model 3 is in keeping with Mr Musk’s earlier practices with the Model S luxury saloon and Model X 4x4 - adding options and higher specifications to help generate cash that can be used to eventually build vehicles for mainstream buyers.

The company burned through more than $1 billion of cash in the first quarter and may need to tap capital markets for more than $10bn by 2020 to fund its car-making operations, new products and expected expansion into China, Goldman Sachs analysts said last week. Mounting liquidity pressures and challenges with Model 3 production prompted Moody’s Investors Service to cut the car maker’s credit rating further into junk status in March, adding fuel to a sell off of the company’s bonds to all-time lows.

For every additional $1,000 that ends up being added to the price of Model 3, the size of the US car market that buys cars that are that expensive shrinks by 1 per cent to 2 per cent, according to Kelley Blue Book. That’s a trade off the company is willing to make.

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,” Mr Drury said.

“Anyone who wanted a base model may have to wait years out.”