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Elon Musk’s ‘Master Plan’ Relies Heavily on the Success of Tesla’s Model 3
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Today, Tesla will be unveiling its long-awaited mass-market vehicle — the Model 3.

It’s a considerable benchmark for the company which set out in 2006 to become a catalyst for the widespread adoption of electric vehicles.

The “master plan,” as CEO Elon Musk laid out, was simple: Sell high-priced, luxury electric vehicles to garner demand for the production of a mass-market vehicle and the infrastructure required to support it.

The plan, thus far, has worked. So well, in fact, that other companies, like Tesla adversary General Motors, started producing mass-market electric vehicles.

The next step in Musk’s “master plan,” however, may be the most important one. The success of the Model 3 is crucial to the success of the company’s ambitions — however the company chooses to measure that success.

Customers lined up the morning of the unveiling.

The Model 3 is Tesla’s cheapest line of vehicles and starts at $35,000 before tax credits with a 200-mile battery range. Compare that to GM’s Chevy Bolt EV, which the company also promises has a 200-mile-range and starts at around $37,500 before credits.

Tesla hopes that the price paired with a $7,500 federal tax credit will make the vehicle accessible to the masses. The catch, however, is federal subsidies will begin to phase out after the first 200,000 Tesla vehicles are bought. Tesla plans to sell up to 90,000 Model S and Model X units this year and the Model 3 won’t begin production until late 2017.

The company has been building up to this point since its inception, according to Tesla spokesperson Alexis Georgeson. Though she declined to go into detail on how Tesla plans to quantify the success of the Model 3 — is it car sales, net revenue generated or a higher general demand for EVs? — she said that a “mass-market vehicle that an average Joe can afford” is the key to “moving the needle” toward a sustainable future. Tesla has also previously publicly stated that the company has plans to produce 500,000 cars by the end of this decade.

Regardless of how Tesla plans to quantify the viability of its Model 3, the fact remains that mass-market success is more costly than succeeding in a high-end, low-volume market.

The cost of developing a vast network of more than 3600 superchargers worldwide has in part been subsidized by the revenues generated from selling its luxury vehicles.

The line to buy the new down-market Tesla looked more like an Apple launch than an auto launch

Tesla doesn’t have a robust network of dealers that it can pass off the costs of sales onto the way that carmakers like GM do. The higher-priced Model S and Model X didn’t necessarily require a large dealer network, since these vehicles targeted a smaller market, but the Model 3 is meant to appeal to a wider swath of customers.

According to Georgeson, who again declined to go into details, the company plans on continuing to invest in its network of store-fronts where people can purchase a Model 3 directly from the company and is currently “adding more every week.”

The company says its direct distribution model — a model Tesla’s policy team has gone to bat for against regulators and incumbents — will work for the mass market.

But GM is hoping its established network of dealers is precisely what will give it an edge over Tesla in selling EVs to price-conscious consumers.

“We have long-standing relations with more than 3,000 Chevrolet dealers,” Chevy product manager Darin Gesse told Re/code. “We feel confident with our dealer partners who have long-established relationships with our customers and the communities in which they are a part. Then there’s the fact that our customers can trust their local Chevrolet dealer in the event they need maintenance work performed on their vehicle.”

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GM’s entrance into the EV fray is arguably a byproduct of Tesla’s success in popularizing electric vehicles. Automakers are not known to innovate quickly unless there’s external pressure from competition, regulators or consumers. With plans to begin production of the Chevy Bolt EV at the end of 2016 and releasing it shortly thereafter, GM is already outpacing Tesla. The Model 3 isn’t expected to go into production until late 2017.

“There’s something to be said for being the first to market, and we think that’s where Chevrolet has a distinct advantage,” Gesse said. “The Chevrolet Bolt EV will be the first mass-market, long-range, affordable electric vehicle to hit the market when it goes into production late this year. We think the overall design, spaciousness of the interior and connectivity features will be enough to win over anyone who is thinking about any of our competition.”

It’s unclear how long Chevy’s first-to-market advantage will take the company in its competition against Tesla. Though Chevy has a long history as a mass-market brand, the Tesla Model 3 is a mass-market vehicle in the same way the BMW 3 series is a mass-market vehicle. In terms of branding, Tesla has managed to garner, and continues to command, a certain amount of prestige and general excitement about its products in the same way Apple has.

Hours before local Tesla stores opened, people began forming a line to reserve their Model 3 cars. It’s a phenomenon unlike anything Chevy has seen in the past decade, and it’s what may help Tesla widely distribute its mass-market vehicle and realize the goals Musk set for the company in 2006.

 

Update: This article was updated to reflect that Tesla is currently opening new stores every week and to clarify details on the federal tax credits. A previous version of this article said the company “expects to” open new stores every week.

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