Tesla Model 3 – The ‘Apple’ of EVs

Interest in Tesla’s Model 3 has exceeded expectations but will it disrupt the EV market?
Published: Thu 21 Apr 2016

Tesla seems to have assumed the mantle of ‘Apple’ of the battery storage market. [Engerati-Engerati’s Week In Energy – Powerwall For All] Now the company seems to be doing likewise for the electric vehicle market.

The Model 3, billed as Tesla’s “most affordable car yet” and set to start being delivered only in late 2017, attracted more than 180,000 pre-orders within the first 24 hours of its announcement and the number is now reportedly in excess of 400,000. The vehicle listed starting price is US$35,000, implying future sales in excess of US$14 billion. And at US$1,000 (refundable) a reservation, that makes a healthy crowdfunded investment towards its build.

Tesla Model 3 insight

The Model 3 is an all electric vehicle that in addition to the Tesla name, has two features that make it attractive to potential EV owners – its range a minimum 350km (215 miles) on a single charge and its price, which is about half that of the higher end Tesla Model S that has been on the market since 2012.

The high demand for the vehicle reportedly took even CEO Elon Musk by surprise – the initial pre-orders approaching the total sales of all Tesla models to date. And it is raising several questions.

Firstly, when production starts – none of the Tesla vehicles so far have come to market when originally planned – can the demand be met? Full production was anticipated in 2018 but it is now believed this will occur later in 2020. Will potential customers be prepared to wait up to 4 years for their vehicle or will they turn to another manufacturer and model? And what about new competing models from other manufacturers? Technologies are improving and prices are dropping, e.g. for batteries, as economies of scale kick in. Chevrolet’s Bolt with a more than 320km (200 mile) range and US$37,500 price ticket is due to launch by the end this year and models from other manufacturers can’t be far behind.

EV potential

EVs are becoming fairly well established in the United States, especially in California, in Europe, especially in Norway, and in some countries in Asia. But still total sales of between 1 and 2 million (excluding hybrid vehicles) represent barely 0.2% of the total one billion vehicles believed to be on the world’s roads.

Forecasts are difficult to make (not helped by lack of consistency in the use of terminology). In a late 2015 study Navigant Research projected global EV sales (i.e. plug-in vehicles), currently around 0.5 million per year, would approach 3 million annually by 2024, with sales of hybrid EVs making up a similar number.

Complicating factors in making forecasts include the oil price, which at the current low levels is more favourable to hybrid vehicles over plug-ins, particularly given the much lower purchase cost of the former, technology developments resulting in range improvements, the availability of batteries and how fast and far their costs might drop – taking into account that declining costs also will fuel residential take-up – and government policies and possibly incentives to promote EVs over traditional combustion engine vehicles.

In Norway where EV sales already account for about 25% of new vehicle sales, the draft transport plan for 2018-2029 proposes that by 2025 all new vehicles should be zero emission, i.e. an EV or hydrogen fueled. A similar proposal is also starting to gain momentum in the Netherlands. With the first countries introducing such a policy, others are likely to quickly follow suit, as they have with a 100% renewable generation policy.

The EV opportunity

Once EVs start to approach the price and performance in terms of range per charge versus per tank of fuel of traditional vehicles, then demand can be expected to increase exponentially.

Just as Tesla’s Powerwall battery has gone a long way to stimulate the distributed storage market so the Model 3 is stimulating interest in the EV market. However, whether it will prove to be the gamechanger that some suggest remains to be seen – a lot can happen over the next year, let alone the next three to four years. By its nature, a Tesla vehicle carries a ‘premium’ status and is likely to find strong competition from the long established luxury car makers such as Mercedes Benz and BMW. But one only has to look at the smartphone market to see how quickly brand fortunes can change and newcomers can outsell the longer established brands.

Regardless of how the market develops it will need to be closely watched by the industry. With increasing ownership of EVs will come increasing demand for charging equipment, both public but particularly at residential level. Another recent study from Navigant Research warns that much of the charging equipment installed to date lacks communication capability and uncontrolled charging load could present challenges to utilities. Utilities also would be unable to use the vehicles’ batteries to support the grid while owners would be unable for example, to access special rate plans.