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Here’s what happens to the US mid-luxury market if the Tesla Model 3 does as well as the Model S

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It’s rare for Tesla to disclose its sales per market, but it looks like they couldn’t resist the opportunity to highlight the Model S’ market performance in the U.S. during the earnings this week. The company confirmed 25,202 Model S sales in the U.S. in 2015, which gave the company a 25% market share, while every single other large luxury sedan has seen its sales decrease during the same period.

It gave me the idea to look into the midsize luxury segment in the US, which is the segment the upcoming Model 3 is expected to compete in, and see what it would look like if the vehicle was to do as well as the Model S did in the large luxury segment.

Now I’m not saying it will do as well, but I’m saying it is certainly a possibility worth looking into, especially considering the now apparent impact the Model S had, and presumably is still having, in its own segment.

The U.S. is one of Tesla’s most well-penetrated market, making it perfect for this exercise, even though Tesla CEO Elon Musk said this week that Tesla has still room to grow in the market, especially in the Northeast, which he called “quite under-penetrated”.

First, let’s go back and take a look at the chart Tesla shared this week to show the Model S’ impact on its segment:U.S. Sales of large luxury vehicles

I gathered the same data from the manufacturers and created a similar chart but for the midsize luxury sedans segment, in which the Model 3 is expected to compete.

As you can see below, it’s quite obviously a much bigger market than the Model S’ segment, actually about 5 times bigger, but also, while the large luxury sedan market didn’t grow last year, the midsize luxury sedan saw an important increase in sales of almost 10%. U.S. Sales of Midsize Luxury Vehicles

Then I used the same data to make some projections and see what would happen to the segment if the Tesla Model 3 does as well as the Model S did last year. I projected the sales into 2019 and 2020 because if Tesla is on time with the Model 3 launch in late 2017, in term of production ramp up, 2019 and 2020 become to the Model 3 what 2014 and 2015 were to the Model S since it launched in the U.S. in late 2012.

Now of course the segment is not likely to have all those same models 3 and 4 years from now, but it still gives us a pretty good idea of the market. Those automakers are expected to come out with electric vehicles themselves, but most of them plan on launching plug-in hybrid versions of their existing models, which often results in more sales cannibalization than gains in market shares.

For the projection, I assumed that the Model 3’s market shares would grow in 2019-2020 exactly like the Model S’ did in 2014-2015 (up to 25.4%), while for the sake of simplicity the midsize luxury sedan segment had the same flat year has the large luxury sedan segment in 2015. From which manufacturer Tesla is getting those market shares is of course at random and only to illustrate its total impact on the segment if equal to the Model S’:U.S. Projection of Midsize Luxury Vehicles

Based on this projection, if the Model 3 was to have a similar production ramp up as the Model S based on its total market capacity, and perform as well in its segment as the Model S did, Tesla could sell close to 150,000 Model 3 units in the U.S. in 2020.

In the past, Tesla’s management talked about hoping to be at an annual production rate of about 500,000 units per year in 2020. If you account for oversea markets (Europe, Asia, etc.) and Tesla’s other models, it’s not too difficult to imagine the company having plenty of demand to cover a capacity of 500,000. Honestly, I’d be more worried about the production scaling up to meet it.

Of course to achieve such success, the Model 3 needs to be as compelling of a vehicle in its segment as the Model S is in its own segment. We should have a much better idea about that after the official unveiling on March 31st.

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  1. Atlantis - 7 years ago

    Next to this market, the next disrupting thing will be the introduction of Tesla Truck Pickup in 2022 or 2024 and seeing the effect in the very lucrative US truck market.

  2. asimo3089 - 7 years ago

    I think the Model 3 is also going to disrupt cars below this category. I’m talking cars priced around 25,000-30,000$. Things like upgraded Honda Civics. Why? Because I was ready to buy a car around that price 6 months ago, and here I am prepared to splurge on something much more expensive.

  3. darthbelichick07 - 7 years ago

    The Model 3 has the potential to be the most compelling car in its class — perhaps by a large margin.

  4. hobowankenobi - 7 years ago

    Agreed. Most important things, in order for Tesla to do anything close to these projections:

    – Compelling car. People have to love it. As much as the S.
    – Market leading tech. Seems unlikely today, but with literally billions of $ getting poured into R&D by so many companies….somebody may offer better/sexier/longer range in the next 18-36 months.
    – Tesla must deliver (very close to) on time. Not over promise, and scale production, support, delivery, etc.

    …And yeah, I agree…..anybody looking at a $25-30K price point will be tempted to stretch. Only those that truly drive long range on regular basis will not be tempted.

  5. John Ratcliffe - 7 years ago

    I would add that the Supercharger network has solved the long range travel barrier to going all electric. I travelled and charged for free using a rented Model S throughout Europe.

    • - 7 years ago

      I commute 210 miles each way twice a week. This would eliminate the 3 (as well as any electric vehicle other than the S/X, which is not in the budget) if not for the fact that I pass right by 2 super chargers. So as long as the 3 can use the super chargers, I’m on board and will be dropping my deposit on March 31.

      • John Ratcliffe - 7 years ago

        The Superchargers are not only for Model 3 and all teslas cars but will be retrofitted to accept non tesla cars too… see paris video on elon’s talk to customers. You may need to pay to use the Supercharger for the Model 3 they are free for Model S and X.

      • BEP - 7 years ago

        In Europe, for those kind of trips, we have special high-performance (1000+ kW) vehicles. They are fully electric, have unlimited range, and are fully autonomous so that you can do other activities. We call them trains.

      • - 7 years ago

        @John Radcliffe: I expect to pay up front for the right (and proper equipment) to utilize the Superchargers like current S and X owners, but I would hope to not have to “pay as you go”.

        In all honesty, without knowing more I have no clue which is better economically, but it seems more “free” if I can just park, charge, and go.

        I know Elon has said that the use of the Superchargers has been abused by some owners, and I suspect that will only get worse once the 3 hits the market. This, something will have to be done.

        I’ll check out the Paris talk.

      • - 7 years ago

        @BEP: In America, we have a bunch of people who don’t see expenditures for public transportation to be an “investment”, so it’s kind of “every one for him/her self”.

        Here in California, our high speed rail project has been delayed many times as a result of constant lawsuits by groups who don’t want to see money spent to construct it.

        I’ve been to Europe several times, and have always enjoyed and marveled at the high speed trains (Trenitalia, etc.). But there really is a cultural lack of a “we’re in this together” mentality here. Specifically, “how dare you try to tax me to pay for something that might help other people”.

  6. Zeke - 7 years ago

    Keep in mind: Tesla made as many cars as they could produce in 2015, the % increase year over year was not limited by demand, but by supply. As they continue to ramp up production, if they cannot fully meet demand with their production capacity, they will continue to double their sales. If the Model 3 is of comparable in terms of quality and is as fun to drive as the Model S, we will be in for an interesting year (2017).

  7. Illuminati - 7 years ago

    Taxi drivers will do everything possible to get their hands on a Model 3. The waiting list is going to be long, very long…

  8. scottkellyfa711 - 7 years ago

    Asimo3089 beat me to the punch. Honda’s bread-and-butter Accord EX-L with tech package has a price of almost $34,000; the base LX version is in the mid-$20s. Run the TCO of the Accord against the Model 3 (no gas, no oil-and-filter changes, no water pumps, no hoses or belts, etc.), and even Honda and Toyota’s bread-and-butter cars are at serious risk.

    I’ll go DarthBelichick one better – this car has the potential to be the most disruptive in _any_ class; indeed, the Model 3 has the potential to upend the entire auto industry. IMHO, if Tesla delivers a compelling car when it unveils Model 3, it will be the single most important automobile in over 100 years, dating all the way back to the original Ford Model T in 1908.

  9. Martijn Lafeber - 7 years ago

    What’s even more interesting, is that in many countries, you’ll save 30k in fuel given you drive 300k in the Model 3.

  10. James D - 7 years ago

    Tesla sold over 50,000 cars in 2015. 0ver 99% were Model S. But the real story is that all of the competitors mentioned that are declining are foreign auto makers. Thats the real story.

  11. petronius123 - 7 years ago

    And now we know. It’s every bit as attractive as the S was, in its class.

  12. jerryd - 7 years ago

    Good article and it will do that and more. Yet the other car companies are still in denial and won’t have decent competition for yrs.


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