We continue to believe the Model 3 will be the most important catalyst to the world’s adoption of EV and autonomous driving. And we expect it to play a big role in commercializing and consumerizing AI and robotics technologies. Heading into the Model 3 hand-off event, we had 10 key questions, of which 5 were answered as expected, 4 were favorable to our expectations, and 1 was a disappointment. Here they are, along with our take, listed in terms of importance:
Preorders: As expected. Demand for Model 3 is strong despite under selling. On Friday, Tesla announced there are over 500k preorders for the Model 3, up from 373,000 reservations placed six weeks after the vehicle’s preview in March of 2016. Over 500k preorders is in line with our expectations (see our note dated 7/5/17). While in line with expectations, the number is impressive given that there has been little to no Model 3 advertising. In addition, Tesla has been “anti-selling” the Model 3, and hasn’t even had vehicles available to test drive until Friday night.
Production Ramp: As expected. The production ramp will take longer than most people think. We are expecting about 6k Model 3 deliveries in 2017. Musk made it clear that it will be difficult to ramp production commenting, “we will be in production hell for at least 6 months, maybe longer”. Musk cited the Model 3’s 10k unique parts from around the world. Tesla may have difficulties keeping these parts flowing into the production line. We believe the assembly line itself is another obvious manufacturing hurdle. Based on observations at the hand-off event, we think it will be November before the Model 3 assembly line is even in place, and it will take several months after that for the kinks to be worked out.
Our Delivery Assumptions: As expected. It’s going to take longer to ramp deliveries, but this story will be bigger than most think. Our delivery estimates are unchanged. We’re expecting about 6k Model 3 deliveries in Dec-17, 308k in 2018, 373k in 2020. Our breakout year for the company is 2023 when we have deliveries of 1.6m, up from 980k in 2020.
Our ASP Assumptions: Favorable. While we believe there will be higher ASP’s, our delivery expectations remain unchanged. We’re raising our ASP assumption until the end of 2018 to $50,000, up from $44,000, because we believe there will be greater interest in the long-range model (+$9,000) and Enhanced Autopilot (+$5,000).
Cannibalization: Favorable. The Model 3 is the best car in the world for its money, but it’s no Model S. After test driving both the Model 3 and the Model S, it’s clear these are very different cars. Similarly, we view the target consumer for the Model S as a different consumer than the Model 3. However, our TSLA model still assumes dramatic cannibalization of Model S from Model 3, with Model S deliveries going from 49k in 2018 to 27k in 2023. We’re leaving the model unchanged to be conservative.
Cost of Enhanced Autopilot: Disappointment. We did not expect Enhanced Autopilot to be a $5,000 feature, which causes us to speculate about whether or not there will be an up charge in a few years for full autonomy. Every Model 3 will have the hardware (8 cameras, 1 radar sensor, 12 ultrasonic sensors, 10 teraflops of computing power from Nvidia’s Drive PX2 platform) for Enhanced Autopilot today and will enable full autonomy, likely in 2-3 years. We were surprised the company is charging $5,000 to activate the Enhanced Autopilot feature today. This begs the question: Will the company charge to unlock full autonomy? Enhanced Autopilot features include traffic speed matching, changing lanes, merging on and off highways, and parking. The summon feature will be extended to more complex environments, like a busy parking lot. According to TechCrunch, the self-driving feature will cost consumers an extra $3k.
Full Autonomy: As expected. Every Tesla made today has the hardware to be upgraded to fully autonomous driving, which will likely be available in a few years. Unfortunately, lawmakers, not technology, will be the hold-up. The message from Tesla is clear: Autonomy will be here sooner than you think. Musk’s comments at the hand-off event where consistent with past comments, “Cars will be increasingly autonomous. You won’t need to look at an instrument panel all that often . . . You will be able to watch a movie, go to sleep. Every Tesla being produced now has all of the hardware necessary for full autonomy. . . it’s got 8 cameras, 12 ultrasonic sonars, it’s got the forward radar and it’s got over 10 teraflops of computing power.” It’s worth noting that a time frame for autonomy was not given. In the past, the company has suggested it would be achievable with a software upgrade sometime in 2019 or 2020.
Range: Favorable. Long range battery version breaks the 300-mile barrier. Standard battery is $35,000 and has a range of 220 miles; 0 to 60 mph: 5.6 seconds. Long range battery is $44,000 and has a range of 310 miles; 0 to 60 mph: 5.1 seconds.
Design & Performance: Favorable & As Expected. Consumers are going to love the design and the interior of the Model 3: a minimalist interior, single panel landscape display, glass roof, no grill with all smooth surfaces. As for the ride, our short test ride was more of a teaser than an actual test ride. There is a gap in ride performance between the Model 3 and the Model S, which should be expected given Model 3 will cost about 40-60% less than a typical Model S. That being said, car buyers in the $30-50k range will be more than pleased with the Model 3 ride. Elon Musk tweeted following the event that their will be a performance version of the Model 3 in the middle of 2018.
Safety: As expected. Expected to have 5-star rating. Video at event illustrated Model 3 is safer than 5-star rated Volvo S60.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.