Tesla Raises Target-Price of its Future Affordable Car

By · May 29, 2013

Tesla Factory

Tesla will have to use some magical technology in its factory to produce an affordable and profitable 200-mile EV for $40,000—much less the $30,000 purchase price originally offered.

The long-term vision of Tesla Motors has always been to enter the mainstream auto market with high-volume electric cars. Its niche expensive models—the Roadster and Model S—were positioned as luxury stepping-stones, to build experience and brand awareness as it moves down market to affordability. Tesla CEO Elon Musk told Bloomberg last week that his company expects in three to four years to offer a car to compete against the Nissan LEAF—claiming that Tesla’s future affordable mass-market car will cost “below $40,000.”

Wait a second. I thought the bogey was $30,000. At least, that’s what Musk told Newsweek’s Fareed Zakaria in July 2008. “We think we could either directly or in partnership with a major auto company actually get to a car that is under $30,000 in four years,” he said. If taken at face value, that would mean a $30,000 car by, well, this year. (I realize that Musk said this prior to the financial crisis.)

But in repeated subsequent interviews, he reiterated that a $30,000 electric car would compete against a BMW 3-Series or Audi A4. In fact, Tesla head of design Franz von Holzhausen told Australia’s Drive.com.au, as recently as January 2013, that a new small Tesla would be aimed to be priced as low as $30,000 when it launches in 2017.

Time to Change the Talking Points

While the target price has apparently been elevated to $40,000—about $10,000 higher than the Nissan LEAF—Tesla has been more consistent (so far) with the target range. Mark these words: Musk said the new car will have a range of about 200 miles per charge, in last week’s television interview with Bloomberg.

That will be a clever trick, if Tesla can pull it off. The company killed the 40 kilowatt-hour option on the Model S, which was offered at $58,570. The 40-kWh Model S had a promised range of 160 miles—but a realistic real-world range of probably 130 miles.

To offer a 200-mile EV, even at $40,000, will require Tesla to move down the cost curves faster than its vehicles zip down the highway. Of course, I haven’t seen anybody question if the new $40,000 target is before or after a $7,500 tax credit. Regardless, 200 miles of range will require a battery pack of 40 to 50 kilowatt-hours. If you fudge the price numbers and say the new “affordable” smaller Tesla model will cost $47,500 (before incentives), and the range numbers to use estimated rather than real-world miles, it will still take transformative technology and accounting to get there in a profitable manner for Tesla.

For a point of comparison, the BMW i3—with its cutting-edge lightweight carbon fiber body and 22 kilowatt-hour battery pack—is expected to have a price tag approaching $50,000. Range will be around 100 miles. Let me understand: Tesla will double the i3’s range, offer it at a lower price, and still compete with a 3-series? I would love it if somebody from Tesla could walk me through how that is possible.

None of my questions diminish Tesla’s extraordinary achievements to date—or its track record of defying all expectations. But everybody cheering Tesla on with its heroic mission, and dizzying stock price, should also keep an ear open for promises that sound too good to be true.

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