Shopping for premium vehicles usually affords buyers choices between the different Series of Classes that vary by performance, features, and size. This is no different for the 2017 Tesla Model 3, which is to the Model S what the 3 Series is to the 7 Series.

There is also another benefit to the introduction of the Model 3, and that is cash.

Tesla’s superstar CEO Elon Musk has categorically stated the company’s mantra for the coming year: cash is king.

This is because the company has previously suffered from negative cash flow due to the production delays that plagued the Model S sedan and Model X crossover – more so for the latter.

All the hold up caused cash to be stuck in inventory, but once production rates picked up the automaker’s financial arteries were unclogged and it has entered into this year with positive cash flow for the first time.

Assuming the Model 3 is a simpler vehicle to produce due to its nature as a smaller version of the Model S, plenty of those considering the larger models going for this upcoming one would do the company plenty of good.

Higher volumes would be churned out which translates to less cash tied to components and inventories, meaning better cash flow. The goal, in a way, is to draw buyers from the more expensive models to the Model 3; and it shouldn’t adversely affect profitability. After all, we expect the profit margin percentage of the Model 3 to be equivalent to that of the Model S and Model X.

Staff Reporter

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1 Comment

Samuel Hoogendoorn · February 23, 2016 at 9:35 pm

“After all, we expect the profit margin percentage of the Model 3 to be equivalent to that of the Model S and Model X.”

No professional analysts expects the same stratopheric profit margin of the Model S to translate to the much lower priced Model III. It’s a smaller, less expensive car that’s going to have a smaller profit margin in order for it to remain cost competitive with other vehicles in its class. I highly doubt that there will be significant scavenging of Model S or X sales since they are in a totally different vehicle class and price bracket. Buyers of large premium vehicles don’t normally test drive a large luxury vehicle back to back with its entry level sibling.

If you browse the Tesla Motors Club and TSLA article comment threads, you will find that many owners of the Model S and/or X will be buying a Model III in addition to their existing Teslas. Some EV owners have stated that they will lease a Chevy Bolt for a year or two until they can get their hands on a Model III which I think is a pretty good idea since the base Model III probably won’t be available until late 2018.

In short, I totally disagree with this article’s premise, and think that the Tesla Model III will stand on its own and steal sales from all comers in its price range. My good friend who have never bought a new car before and didn’t plan to, is planning to buy a Tesla Model III. I think that the demand for it is being underestimated since 80% of all car sales are for used vehicles. The only EV that elicits excitement and interest in the minds of those (that I’ve interacted with) who know little about EVs are Teslas. Everything else is “meh,” “too small, slow, boring, and/or expensive,” or “AUGH! MY EYES!!!” The performance, cool features, good looks, dual trunks, 17″ touchscreen, Autopilot, and safety make Tesla’s desirable. But it really is the constantly growing Supercharger Network that makes the difference. Without it, Teslas would just be city cars like every single other EV on the market.

PHEVs like the new Chevy Volt are great, allowing people to experience all-electric operation on a day by day basis while allowing “spur of the moment travel capabilities” that an ICE-age car affords. I frankly don’t ever plan to do a long trip on the spur of the moment. It just doesn’t make sense to me, but some people do it so… I digress. For most people, I feel like a PHEV would be best compromise at the moment for the majority of people (at least those looking to stop burning gas), but unfortunately, few PHEVs offer a >35 mile range which is the average daily travel range of 80% of the US populace. That said, I feel that the market for the Tesla Model III spans a HUGE segment of the auto industry. There are a lot of vehicles in and around the price range. As the Supercharger Network continues to get denser, Teslas will become more and more compelling.

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