How Much Will Tesla Motors Inc.'s Gen. III Car Change the Game?


Model S and Model X owners are paving the way
Elon Musk has said repeatedly that when a customer purchases a Model S, or when they purchase the forthcoming Model X, they are investing in a car for the masses. Tesla Motors' (NASDAQ: TSLA  ) production of its Gen. III vehicle has long been the car company's goal, as the vehicle will directly compete with the top-selling electric cars in the U.S.

Tesla's first full year of production has enabled the company to gain a more substantial market share in the luxury-car segment. So what happens when the Gen III is introduced at a $30,000-$35,000 price point and it can directly compete in the midrange vehicle segment?

Selling to the top 2%
The Model S competes in the luxury segment, a much smaller playground than the economy or midsize segments. Tesla had about a 17% market share of passenger vehicles with a base price of $62,400, which is the lowest Model S price (after factoring in the federal tax credit). Seventeen percent of the top 2% of the U.S. luxury passenger car segment  isn't too bad for its first full year in volume production.

Source: Greencarreports.com

Which cars will the Gen III outpace?
So can Tesla investors expect meaningful competition in the much larger $30,000-$35,000 segment? Since the Gen III will be backpacking on the success of the Model S (and potentially the Model X), shareholders shouldn't have much to worry about as far as demand goes. Tesla's design and innovation have made it a viable competitor in the luxury market in just over a year. If the Gen III is as painstakingly produced, the Chevy Volt and Toyota Prius will have a run for their money.

Source: Insideevs.com

How is Tesla different?
The electric-car company has made owning a zero-emission car easy, as long as you can afford it. Once the Gen III is available for purchase, owners will enjoy a fully rolled out U.S. Supercharger network, and a price point that will get the electric cars into a much larger market segment.

Source: Tesla

Future is so bright
Once Tesla can compete with the price point accessibility of the Chevy Volt and Toyota Prius, Tesla's market share will likely increase substantially. Making a car for the rest of us by breaking into the midrange price point opens Tesla up to disrupt a much larger buyer pool. The disruption potential of the Gen III should be keeping Tesla's competitors on their toes, especially considering the likelihood that this upcoming vehicle will see even more robust demand than their two high end models.

Shareholders should keep their confidence up, Tesla has come out swinging, and should likely continue to make large strides as it enters new addressable markets.

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Read/Post Comments (11) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On March 23, 2014, at 9:44 AM, FLLMTR wrote:

    You and everyone other fan of Tesla are touting a rapid charging station across America. There will never be enough chargers or locations if even a minuscule 0.1% of the cars on the road are Tesla's. While the concept of battery swaps sounds promising, it still literally requires a ton of batteries that must be maintained and charged at these these stations. Furthermore, the battery swap requires drivers to come back to the original station to exchange the loaner batter back for their own.

    Next, demand for the Tesla Model S is artificial. The company is under-producing based on current demand. And demand is fed by federal tax breaks and a guaranty buy back price by Tesla after a few years. Owners are essentially leasing these vehicles.

    Tesla is going to have to restyle and update the car at least every six to seven years otherwise the car will look dated. This costs money and a lot of it.

    Finally, the Tesla fanboys need to consider that hydrogen fuel cells are the biggest threat to Tesla. Toyota already has a Highlander being tested that can get 60 miles per gallon on hydrogen that takes only 5 minutes to fuel the tank. Hydrogen is the future.

    Li-ion is heavy adding a thousand pounds of weight to the Model S. Producing the battery is environmentally damaging, and it takes a couple of hours to charge. When you scratch below the surface, battery power cars really are not so green nor a sustainable solution for the mass market.

  • Report this Comment On March 23, 2014, at 10:43 AM, HansNoordsij wrote:

    It sounds reasonable but there are some aspects that I am missing in this comment.

    The first is that it will be very good that there will be an extended network of superchargers but the most important advantage is the possibility to charge at home. I live in the Netherlands, drive a Nissan Leaf and for June the delivery of the Model S is scheduled so we will drive only on electricity with both our cars.

    Every morning the car is waiting for me, fully charged, and for must days it is enough (although on larger trips I need to use a fast charger for the Leaf, but as soon as the Model S arrives I can do 99% of my trips within the 400 km range).

    Superchargers are meant for long road trips, that will mainly be exceptional. The fact that charging at home may take a few hours is no issue at night when there is plenty of time.

    Even now our solar panels provide us with more then enough juice to power up the car(s). On a yearly base we drive about 35.000 km, (something like a little over 20.000 miles) while the solars provide energy for over 50.000 km a year (estimated).

    I am looking forward to use batteries to store the electricity (although until 2017 we have here a 100% compensation by means of "saldering" in the grid) which will also be part of the battery plant that is being build.

    Almost every carmaker is busy building BEV's so there will be a much higher choice soon.

    Personally I don't think that the hydrogen fuel cells wil be booming soon. Perhaps if they had started some years ago.

    But for me the most important reason is that I can charge at home without having to go to some filling station (except maybe on holiday trips in Europe when we will visit the SC wit the Model S).

  • Report this Comment On March 23, 2014, at 12:52 PM, tombland wrote:

    @FLLMTR, you're criticizing Tesla's supercharger network and touting hydrogen fuel cells as the future – but where exactly is the network of hydrogen refueling stations? Sure, gas stations might be converted to supply hydrogen, but will that hydrogen be free? Nope. Is it clean to produce? Definitely nope. Would you feel comfortable driving around with a tank full of a highly flammable substance? I hope not. My Tesla can't come soon enough, and I'm not alone. Thousands of people are already desperate for the Gen III car.

    You're assumptions about producing Li-ion batteries are incorrect.

    And Tesla is fully capable of updating the look of their cars, which will no doubt see improvements to the technology and range too. I'm not sure why you'd think this is some kind of hindrance to Tesla.

    Finally, these "Tesla fanboys" you refer to include a LOT of women too. You should consider changing your perspective on this admirable American company and what they are achieving for not only the benefit of the environment but the auto industry also.

  • Report this Comment On March 23, 2014, at 1:12 PM, countrarian wrote:

    I notice the author of this fluff piece conveniently forgets to mention the anticipated launch date of the Gen III (hint: not this year or the next), nor the competition they may face by then. If you haven't noticed there are some big players outside of Tesla (some with very interesting technology of their own), who appear to be making much greater strides downmarket. BTW the price quoted is also pure conjecture and lower than anticipated.

    Looks like Daniel Sparks has another cheerleader to help with the like clockwork weekend Tesla pump.

  • Report this Comment On March 23, 2014, at 2:03 PM, JRUwing wrote:

    @FLLMTR, Hydrogen has a much greater environmental impact than Li-ion batteries do. Hydrogen poses many safety issues as well. Do you know where hydrogen comes from? Right now it is extracted from fossil fuels. In the fuel cells used right now, the expectation is that 10-20% of hydrogen would escape into the atmosphere.

    Li-ion is recyclable and produces no toxic waste. If the manufacturing process of Cobalt is done carefully, the environmental impact is quite low.

    Seeing as the executives are highly experienced in auto mfg and aerospace, I'm sure they realize they may have to update the styling in around 8 years, lol.

  • Report this Comment On March 23, 2014, at 2:04 PM, JRUwing wrote:

    I can't wait until the Gen 3. It will encourage the majors to make electric cars that are competitive with Tesla.

  • Report this Comment On March 23, 2014, at 5:59 PM, Capt601 wrote:

    @countrarian.

    1. you may want to read what other car companies are doing. exactly nothing. except producing very short range EV's, i.e. leaf, ford, fiat. or making hybrids and advertising them as EV's, i.e. Volt Caddy. people want EVs, but they want one that they can drive other places, not just a city car. and the other car companies move very slow. ti takes them 7-10 years to come out with a new concept, and they are light years behind Tesla. and at this point will just stay years behind Tesla before they can come out with a car. They are tied to the oil companies.

    2. The supercharger network is the biggest reason for Tesla's success. without it, it is a city car company. with it, you can drive the country - for FREE!. no other car company will invest in that type of infrastructure as the EV for them is only a very small percentage of the cars they build. at most it would be 5% of their total car production as they are tied to oil. so why woudlthey invest in 10's of millions of dollars in 5% of their cars? they won't.

    3. the dealer network will always hold back the traditional car companies. why you ask? service. Ev's need less service. and dealers make 69% of their money in the service department. hard to scam a car owner on a gasket, oil change, fuel injection service, transmission flush, etc......... when you don't have those parts on the car. brakes last 5 times as long, etc... dealers simply don't want to sell them for that reason.

    also why is Tesla the only car company to provide free updates from you garage?? the dealers. they won't allow it to happen with other car companies because they want you in their shop ( remember that 69% earlier). they'll do it for you, but scam you out of another service while your update is completed.

  • Report this Comment On March 23, 2014, at 7:37 PM, JPWhiteHome wrote:

    @Capt061

    Like you I can't wait for the Tesla GenIII or whatever they call it. The affordable Tesla will hopefully be more affordable than the affordable care act.

    However I don't share your total disdain for dealers. Here's the departments I like and hate at my local Nissan LEAF dealer (Newton Nissan).

    1. Sales. Hate them. I Feel unclean and in need of a shower coming away from each encounter. The only reason I bought my LEAF there was because I didn't have a choice, Dealer purchase or 'no LEAF for you'!

    2. Service. Love these guys, they take great care of my vehicle. Sure I have to pay them, but you get what you pay for.

    3. Parts. These guys are OK. Have parts I need most of the time, though not having a rear hatch windshield wiper was rather puzzling.

    4. Marketing. Love these guys. Went to an event at the dealership and won an iPad2 as a door prize. Hey thanks Guys!! They keep in touch and are genuinely nice people.

    Hey 3 out of 4 ain't bad.

    Let me buy my car without the high pressure sales and heck, I may actually grow to like dealers!! Let Burger King or Starbucks setup shop inside the dealer and I might spend more time there as I wait for my LEAF to quick charge.

    But PLEASE give me the option to BUY online (Not just 'reserve') but BUY, just like Tesla. If you don't, then I'll buy Tesla next go around.

  • Report this Comment On March 24, 2014, at 3:00 AM, JIMMYLIMO wrote:

    I admittedly AM a big Tesla fan, but I'm wondering... when Tesla finally gets around to building 200,000, or 500,000 or whatever, Model E's per year, the supercharger stations are going to get AWFULLY crowded ! Does Tesla have plans to increase the number and SIZE of their stations exponentially as production increases ? With charge times of 20-45 minutes per car, the lines could get awfully long, and tempers awfully short !

  • Report this Comment On March 24, 2014, at 4:33 PM, DrDauger wrote:

    How much does that Hydrogen-powered Highlander cost? Oh wait, you can't buy one. How much will it cost? $50k to $100k according to:

    http://green.autoblog.com/2013/12/11/2015-toyota-fuel-cell-h...

    That's the same price range of the Model S two years ago (the 40 kWh was $50k).

    It should go without saying time to market is very important. And the Model S has a four-year head start on practical FCV's, whose motor is up to 280 hp, far less than the top Model S' 416 hp of 2012. That price bracket will not tolerate a car, FCV or not, underpowered relative to its competition.

    And when will a FCV drive across the US and (unless you're towing a Hindenburg) using what stations? The Supercharger network (81 US stations and counting today) enabled the Model S to travel this winter across the US by a normal citizens:

    http://www.mercurynews.com/business/ci_25010333/coast-coast-...

    whose trip was then repeated by a team of Tesla employees.

    FCV's are just too late to the game to be a serious player, while the Model S is the beginning of a new generation of car.

    P. S. In the 2012 Supercharger introduction, Elon Musk said the stations will be monitored and expanded as needed.

  • Report this Comment On March 26, 2014, at 12:59 AM, TecnamTwin wrote:

    Hydrogen isn't going to happen.

    Tesla plans to updated their models every 3 years.

    The Superchargers will be expanded and/or new stations built as demand increases. They are already looking at near complete coverage of the US in 2015, and the network will continue to get denser. They will also be upgraded to a mind boggling 135kWh.

    The battery Gigafactory will enable them to build the Model E at a starting price of $35,000. Since the competition will be the likes of the BMW 3 series and the Mercedes C class, it will probably top out with options around $60,000 just like them. The Performance version would be more.

    Tesla still hasn't spent a penny on advertising, and people are still beating a path to their door, despite political opposition.

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