3 Reasons Tesla Motors, Inc.'s Model 3 Will Be a Game-Changer

We know a few details about the car, and now the name. But will the Model 3 really be a game-changer? Absolutely.

Jul 20, 2014 at 10:00AM

Earlier this week, Tesla Motors (NASDAQ:TSLA) finally announced the official name of its planned affordable car: Model 3. When Auto Express writer Steve Fowler detailed his interview with Tesla CEO Elon Musk earlier this week about the car, Fowler called Tesla's next-generation smaller car a BMW 3 Series rival. While that statement may seem a bit outlandish to those who aren't familiar with Tesla, there's a good chance Fowler will turn out to be right.

Tsla Wheel

Model S 21" turbine wheels with red break calipers. Image source: Tesla Motors.

"Wait a second," some readers may argue, "BMW sold about 350,000 3 Series Sedans last year. How can Tesla go from a planned 35,000 deliveries this year to soon rivaling the BMW 3 Series Sedan?"

As it turns out, there is quite a bullish case for Tesla's affordable car when you take a closer look. And, considering Tesla's $27 billion market capitalization, the market at large seems to agree that Tesla has a chance at building a car just as marketable as BMW's 3 Series. Indeed, with the help of the Model 3 that Tesla plans to launch in 2017, the electric car-maker wants to sell 500,000 cars annually by 2020. This would put Tesla on par with BMW's entire 3 Series lineup, which includes a hybrid, a touring model, and the Gran Turismo; in 2013, this entire BMW lineup had sales of 500,000 globally.

If Tesla's Model 3 could really rival BMW's 3 Series Sedan, the Model 3 would undoubtedly be an industry game-changer.

But how in the world would Tesla pull this off? Here are three catalysts that could catapult Tesla to the mainstream.

1. Big investments
Tesla is making the investments needed to turn itself into a large automobile manufacturer. The Model 3 will be built on a new and separate platform that will fill out more of the capacity of its Fremont, California, factory. Tesla CEO Elon Musk said the factory has capacity to eventually tool for production of 500,000 cars per year. Tesla has also said it eventually will build factories overseas, showing interest in both China and Europe. 

Tesla Fremont Factory

Tesla Fremont Factory. Image source: Tesla Motors.

Musk wants to solve the lithium-ion battery bottleneck that is currently holding up the company from ramping up production fast enough to keep up with demand once and for all when the company builds its planned Gigafactory. The $5 billion project is set to begin this year and finish on time for the 2017 Model 3 launch.

As talks with suppliers and plans regarding the Gigafactory progress, Musk says the company now believes the original goal of a 30% reduction of cost in lithium-ion batteries as a result of building the factory is a conservative projection. This means Tesla shouldn't have trouble hitting its target $35,000 price point for the Model 3.

2. A unique value proposition
Tesla doesn't have any trouble selling its vehicles. Despite no advertising spending and no promotions, Tesla remains limited by supply -- not demand. Even so, in 2013 Tesla's Model S was the best-selling vehicle in North America among comparably priced cars. 

While Tesla can certainly thank tax credits as a driver for sales, the value proposition for a Tesla vehicle is undoubtedly compelling in other aspects. Beyond the wild power and acceleration, the fact that a Model S is fully electric helps it achieve unmatched safety ratings. And naming just a few other unique and compelling selling points the electric-car maker can boast, consider its over-the-air updates, free supercharging for life, and meaningful all-electric range.

Model S Twitter

Model S. Image source: Tesla Motors.

Many of these same selling points are driving robust Model S sales will likely carry over to the lower-cost Model 3.

3. A boost from solar
While a fully electric car already offers big savings over a gas-guzzling internal combustion vehicle, these savings will only grow as solar PV panels continue to become more affordable and more capable.

Solarcity

SolarCity panels. Image source: SolarCity.

Just five years ago, it didn't make sense for many homeowners to go solar. But this is changing rapidly. Consider, for instance, that solar panel prices declined 80% between 2008 and 2012 alone.

By the time the Model 3 is launched, the prices of solar panels are likely to be much lower than they are today. Buying an electric car toward the end of this decade will make more sense than ever.

Combining the right investments, a futuristic car with a solid value proposition, and a likely boon for the electric-vehicle sector from progress in solar technology, the Model 3 is likely to be a game-changer, easily challenging BMW's 3 Series Sedan. More importantly, this sort of success would set Tesla up to officially become a mass-market player.

Priced at around $35,000, the Model 3 will be about 20% smaller and have a range of over 200 miles. Tesla is planning to launch the vehicle in 2017.

Warren Buffett's worst auto-nightmare (Hint: It's not Tesla)
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends BMW, Ford, and Tesla Motors and owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers