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Tesla plans to distance itself from luxury with cheaper/smaller 4th gen vehicle after the Model 3

model 3 wild

Elon Musk’s “secret master plan” for Tesla has always been to offer less expensive and higher volume vehicles – going down market with each new generation. At the moment, Tesla is undoubtedly a luxury carmaker with its less expensive model currently selling for $71,500.

The automaker’s third generation platform – starting with the Model 3 at $35,000 – is the next step in Musk’s plan and will certainly expose Tesla vehicles to more people, but it remains a luxury vehicle or at least a mid-luxury vehicle comparable to a BMW 3 Series or Audi A4.

Whether Tesla would remain a luxury brand or go further down market with its next generation, the one that will follow the Model 3 platform, wasn’t completely clear until now. While talking with the Norwegian Minister of Transport and Communications Ketil Solvik-Olsen last week, Musk made a clear statement that the 4th generation will be even more affordable:

“It [the Model 3 platform] is designed so that roughly half of people can afford the car and then with the fourth generation – smaller cars and whatnot – we will ultimately be in a position where everyone can afford the car.”

Of course, when talking about “people”, he is talking about the market of people who would normally buy a new car and not the entire world population since most people simply can’t afford a new car. He is talking about most people in the market for a new vehicle now having the option to go electric and even the option to own a Tesla vehicle, which is already significant.

The average new car sale price in the US is about $33,000. When you factor in the gas savings on the Model 3, the vehicle indeed becomes affordable for an important part of the market, even though as previously stated, it remains a mid-luxury vehicle.

Tesla could arguably moves its mission of accelerating the advent of electric transport forward while staying a luxury brand and creating compelling electric vehicles, but based on Musk’s recent comment, it does sound like Tesla plans to move even further down market and focus on mass production instead.

It’s always a risky exercise to compare Tesla to traditional automakers, but normally car companies don’t offer vehicles ranging in prices from what Musk is suggesting here. They generally breakdown in different brands and companies, like GM’s Chevrolet and Cadillac or Volkswagen’s VW and Audi. It will be interesting to see how Tesla handles selling let’s say vehicles ranging from $25,000 to $150,000. Maybe its direct sales model could be useful in managing such a car lineup?

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Comments

  1. atbulgar - 7 years ago

    The new A4 is 5-6% smaller than Model S. The distance between the rear wheels and rear end of M3 is less than on Model S. Tesla will use more of the length on M3 for the battery. M3 will be taller than Model S because will use and taller battery cells. On same area the taller cells will have more energy. If Tesla release 100kWh battery with 18650 cells for Model S&X this year I’ll expect M3 biggest version to go above 80kWh and even reach 90kWh with 20700 cells. Of course this depends from the projected weight of M3.

    • Moshiur - 7 years ago

      Interesting analysis. I wounder if A4 is only 4-5% smaller then Model S and Model 3 is 20% smaller then model S, How is possible to give more or equal storage in a car that is 15-16% smaller then A4. Would be interesting.

      With the battery option I like your observation and I too believe it would be a bigger battery then 55kw. Elon mask said the range of model 3 is atleast 215 and we plan to exceed them. So i think they would not make a lot of variations of battery for different model, because doing so will probably make production slower and expensive. Thats the reason they are dropping smaller battery options over time. IMP

    • Haggy - 7 years ago

      The 85kWh battery on the Model S has 7104 18650 cells. Why would it take almost three times as many to get to 90kWh on a smaller car? You didn’t say how much larger the cells might be, but even if it’s 6%, it would likely be a smaller number of cells than current batteries even with a moderate boost, not a larger number.

      • atbulgar - 7 years ago

        I never said larger number! Speculations are for bigger cells 20700 in size – 8% taller and 11% wider than 18650. On same area the battery pack with taller cells will have more kWh, but between the thicker cells has more empty space. In the pack with bigger batteries will have less connections(because smaller number of cells) or less weight of non cells materials. I expect Tesla to be able to fit 90kWh battery pack with 20700 cells in the wheelbase of Audi A4 or Model 3, but they not gonna do it till some real competitor on the market in end of 2018 or 2019.

  2. ela - 7 years ago

    4th gen implies a price range step below 3rd gen ergo whereas M3 competes against 3-series/A4/C-Class, 4G will compete against A3/A-Class/1-series/Golf/Corolla/Focus/ platforms and their complimentary variants. ditto all other competing brands in the same space. this is the real bread & butter of the auto industry.

    M3, significant as it is in Tesla’s mission to accelerate the advent of sustainable transport, is mere prelude to what 4G has the potential to realise that end. And they still could go even further downmarket beyond that to where MINI/A1/Polo/Clio etc battle. I do question the presumption of brand dilution at selling cars in these price ranges. I don’t believe it’ll affect Tesla at all, but the unglamorous work of building up to that capacity is their day to day preoccupation atm. There’s a while yet to go before that happens.

    look forward a decade or so. a couple (or more) GFs to will drive down battery unit costs, more savings to be recouped through mitigation/recycling/repurposing of those batteries for however many incarnations they can serve will help facilitate all that at a greater scale than is possible at this time.
    Tesla Energy as the growing norm in all manner of industry: peak shaving energy, cutting grid load and carbon emissions… it just seems inevitable.

    • md - 7 years ago

      Yep. Calling it now. 4th gen will be a hatchback like the A3/golf. It will shorten the car a step further as you dont need a long arching rearside for the 2nd row to have headroom.

      • Aas - 7 years ago

        No need for headroom on the back seat?!? Maybe in coupe but in hatchback you definitely need rear headroom because it’s mostly occupied. I’m 198cm (6.5feet) tall and I can sit comfortably in Opel Corsa sitting widely.

  3. Taylor Marks - 7 years ago

    $25K to $150K isn’t all that big a range… It’s only a factor of 6.

    Apple sells both the Mac Mini (starting at $500) and the Mac Pro (topping out at $15K) in the same store – that’s a factor of 30 – quite a bit larger then what you’re talking about.

    The Apple Watch Sport starts at $300 while the Apple Watch Edition tops out at $17K. That’s a factor of 57.

    I wonder if, if/when Apple enters the car market, they’ll choose to roll out models at every price point from the very start, like they did with the Apple Watch. Apple has a lot of money – they can afford to build 40 Gigafactories without any loans or anything, just with cash on hand, if they want to. At the same time, all the rumors have suggested that Apple wants to partner up with an existing car manufacturer, not have their own factories.

    Sounds like the Apple Car will be more like the Motorola Rocker (can’t remember how that was spelled – ROKR? ROCR? RCKR?) and less like the iPhone.

    • rustybeancake - 7 years ago

      Apple always seem to be a ‘design’ company who outsource their manufacturing, no? I expect the car will be no different. I expect they’ll position themselves upmarket, yet mass market, as usual – probably meaning something between Model 3 and Model X.

  4. Mpanzani - 7 years ago

    This article takes things out of context, Elon never said that he will want tesla to make cheep cars, rather that gen4 would cost less, and accessable to the median wich is 32-33k in US.
    There’s absolutely no reason why Tesla should do cheep cars, to compete against corollas and the like.
    In fact the day they stop making premium vehicles and go cheep is the day they will start loosing customers like myself.
    If you look at how many millions recals GM and Toyota made in last 4 years world wide, then you will understand.
    At 35K-42K both the model3 and the future modelY will sell faster than they can make them, easily they could sell a million model3s and probably even more modelYs in the future every year.

    • md - 7 years ago

      What are you on about? The reason corollas are being produced is because it is profitable to make and sell them. Profit is a pretty good reason for Tesla to compete with them. But they shouldn’t, just because you won’t buy it? You are looking at it a bit too much from your own perspective.

    • John Miller - 7 years ago

      What about Model X recalls? Or all the glitches and flaws that were sorted out with Model S while it matured? Tesla does not have a flawless track record. Also, GM and Toyota can not be compared to Tesla in the way you suggest because those companies make a huge range of vehicles, and can’t focus all their energy on a few models like Tesla can.

      Tesla may lose you as a customer when they produce Model 4, but they will gain many more. Some people may feel ashamed that the Tesla symbol on their car no longer stands for “I have lots of money” (i.e. “luxury”), but those vain and irrational people are not essential to Tesla’s bottom line.

      • Haggy - 7 years ago

        As recalls go, the one for the Model X is tiny. Tesla is handling service issues fine, as evidenced by a 97% satisfaction record with the vehicles. Having lower cost cars won’t make the more expensive ones less prestigious, for those who care about such a thing, but there’s nothing suggesting that that constitutes the reason most people buy their cars. If you came up with a top 10 list of reasons why people buy a Model S, I’d be surprised if prestige is high on the list, if it’s on it at all. On the other hand, people do buy the Model 3 “because it’s a Tesla.”

      • Nathanael - 7 years ago

        Bluntly, Tesla does have a lot of glitches and flaws and bugs which have required service. Some of which they haven’t sorted out yet.

        But then so do most carmakers. Toyota’s “never take it in for service ever” record is exceptional. Mercedes and BMW and Audi all have high service requirements.

  5. Mark - 7 years ago

    This is a stupid article, that’s not what he said in the video. Please don’t put your ignorant comments in other people’s mouth.

    • Fred Lambert - 7 years ago

      How is this not what he said. I quoted the relevant part in the video, in which he said the 4th generation will be less expensive and smaller. Now please explain.

  6. Ronald D Marlow III - 7 years ago

    When you look at the picture, who else in the picture is looking at the main jewel piece? Everyone is looking at the Tesla Model 3. Look at the picture again and count the number of people looking at the car. Tesla Model 3.

  7. QC - 7 years ago

    Electrek has always good content but now you guys jumped the media bandwagon. If you watch the full interview with Elon in Norway he stated
    1) He has to be careful what he says as media takes that one short phrase and makes extensive speculation
    2) He replied to the question of revamping urban public transportation, that they are working on a concept. Most likely Full autopilot + Uber service for everyone to use/share them in the cities rather than a new bus vehicle
    3) If the Model 3 average price will be ~42 000$, there’ still room for a average price ~32 000$ unit without losing the luxury appeal it has gained so far

    • Fred Lambert - 7 years ago

      Not about loosing luxury appeal? He is talking about “everyone” being able to afford gen 4. Not everyone can afford a luxury car.

  8. Frii - 7 years ago

    Samsung is selling anything from el cheapo phones to the most expensive and best flagship in town (leaving aside Apple as a pure luxury manufacturer). It works just fine for them (there are problems, but these are more due to the uberabundance of options within categories rather than serving different categories).

    Tesla does not need to play by the industry’s old rules. It has never positioned itself as strictly a luxury brand (premium maybe, but not luxury) not least because their goal is to advance sustainable electric mobility rather than “just” make great cars. They’re also not purely a car maker, but an ecosystem provider as well: solar installations, buffer batteries, charging networks, and EV cars. No other firm has anything remotely similar to offer at the moment. Many people buy a Tesla for their being a pioneer there, too.
    And frankly, looking at the Leaf / e-Golf and i3, they appear (hugely) overpriced compared to the TM3 which offers you the real deal of EVness. Never underestimate the power of the ecosystem. So, if I were to compare Tesla to the smartphone industry, they’d not be Apple, they’ll be more of a Samsung.

    So, I don’t see the big deal on offering options between say $/€ 25,000-150,000. Actually, as the article neglects, you can currently see many “premium” car makers moving to offer this exact whole range. Audi offers anything from A1 to A8/Q7, BMW is in it with 1 series to 7/X5 and even Mercedes has anything from an A class to a Maybach branded S.
    Plus: It’s not like people don’t know that “cheaper” brands are made by these makers, too. Everyone knows Smart is made by Daimler, Skoda by VW and Mini by BMW, just as they now a Cadillac is “only” a GM car, a Lexus a Toyota and an Audi a VW. I know a lot of people who rather buy a Skoda right now, because VW’s core brand has gone premium-priced (in Europe) and Skoda offers the same engineering for less money.

    Overall, we also need to factor in the fact that car ownership will continue to lose its status symbol status as car sharing, car pools and neighbourhood sharing become more popular. I can’t see how that would hurt Tesla. Though I do see how it will hurt other carmakers… In general, the EV-fication of the industry might lead to the demise of several brands (thinking local US brands like Lincoln and Infiniti, Seat, Citroen) and manufacturers (thinking Fiat, Chrysler, Jaguar)…

    • Benjamin - 7 years ago

      Samsung is a terrible example of that strategy working well from a business perspective. How much of the smartphone industry profits does Samsung make compared to their marketshare? I don’t care what your opinion is on some model phone they produced or what their raw sales numbers are, you can’t pay your bills or reward shareholders with unit sales and market share. What percentage of the profits do they make? That’s what matters from a business perspective. I don’t know their most recent numbers, but the last time I looked into it(late last year), it was an absolute joke. Adopting Samsung’s strategy in the EV market would wipe Tesla out overnight.

      Tesla has to curate its brand. It’s simply not big enough to survive a boondoggle like Samsung’s smartphone boondoggle of bringing to market cheaper poorly functioning phones in the name of getting unit sales/market share. That’s exactly why Samsung can’t take in more of the profits in the smartphone industry, because they damaged their credibility as a premium brand in the eyes of millions of people who have had one of their cheap products, and as such, simply can’t get away with charging premiums for their phones to many people.

      Tesla needs to be very careful what offerings they put their badge on. If they’re really going to go into the sub 35k market, they should consider a subsidiary brand to brand it with. Honda motors has Acura for their higher end offerings, and their lower priced offerings get the Honda badge. Same with Toyota and Lexus. Those companies do that because they understand the power of a brand. Tesla should consider doing something like that, only in their case in reverse since they’ve already successfully branded for the high end. Otherwise it could be bad news for them.

      • Alex - 7 years ago

        Have you looked at recent Apple numbers?
        Tesla can’t go the way of abandoning innovation and technological lead for arbitrary “brand and style” like Apple did and now they are still a giant but one that is stagnating.

      • Nathanael - 7 years ago

        Tesla’s brand is not about luxury. Tesla’s brand means the following:
        — 100% electric, never need fossil fuels ever
        — newest most cutting edge technology
        — most aerodynamic
        — super fast

        People actually complained about the “Spartan” interior of the Model S.

        None of this is inherently expensive. With electric motors, being aerodynamic makes it cheaper (more range) and being super fast comes for free. The entire goal of Tesla is to make 100% electric affordable.

        In fact, to avoid brand dilution, the most valuable thing Tesla could do would be to make a pickup so that their service vehicles could be all-electric.

  9. 99%er - 7 years ago

    again, Tesla’s objective: accelerate the advent of sustainable transportation. premium automakers compete at the premium end of pretty much every market segment these days. MINI is pitched as such just like the FIAT 500, but anyone with a long enough memory knows neither one of those brands started out that way. what exactly prevents Tesla from doing the same? where they to make a car to compete at that level as a premium automaker, they’d do so cognisant of core brand values. small cars don’t have to mean ‘bad’ or ‘cheap’ anymore. and no one stands to benefit more from sustainable transportation’s most noble aims than the masses on the bottom of that pyramid where the operating costs of electric vehicle ownership would make the most sense. if some would rather that remained privileged, so be it. they’ll change their minds in due time.

  10. JON G JONSSON - 7 years ago

    There is a great unfulfilled need of a commuter-style car – a two seater type – that is fully electric. Mini has hinted, they might bring out a very good looking offering called “Mini Superleggera”. It is a big market to explore. Telsa,
    or somebody will finally get to it.

  11. Bobby - 7 years ago

    I don’t see the range of prices as a big issue, but I am curious what would really differentiate the 100K+ Model S and the ~45k Model 3 with a few options. Aside from a bit faster 0-60 and moderately larger interior, it seems like the Model 3 will have almost all the same options – particularly autopilot.

    But rather than being an issue for Tesla, this seems like an issue for the rest of the industry that doesn’t have Autopilot. Once AP takes off, what value will all of the other driving aids bring?

  12. I see this as great news because the less expensive their cars are the more pressure they put on other companies to make better electric cars. I feel like the Model 3 is already doing this and if they make a model that’s around 28k-35k, then the pressure will be even greater. Means more options from other companies hopefully lower prices all around for electric cars while gaining even more range and features.

  13. some_dude101 - 7 years ago

    Musk has already said (in a older town hall q&a you can find on youtube) that the Tesla brand becoming less luxury with cheaper cars is not an issue, since the goal is sustainable transport. If brand fancy-ness has to be thrown under the bus to reach that goal, too bad, but it’s not that big a deal. Plus even their cheapest cars will be awesome, I’m sure. Tesla is good at playing the game, doesn’t mean their recent moves are the endgame. In fact it will probably throw off a lot of people because it’s almost unintuitive for Tesla to be racing so fast to the bottom when it could just bask in the shower of crazy margins at the high end. Must be super confusing to traditional automakers. Lol.

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