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Tesla's Compact Car Will Cannibalize Sales of the Model 3 and Y: Unless They Do These Three Things

Tesla will eventually unveil their compact car and I believe they haven't yet because it would cannibalize sales of the Model 3 and Y. That is, unless Tesla does these three things.


Tesla Compact Car - Will It Cannibalize Sales?

Tesla's Compact car will eventually be unveiled, and when it is, I think we are going to see sales of it cannibalize the Model 3 and Model Y. This is why Tesla has not unveiled it yet. There are other reasons, of course, but this is the primary reason.

What are we doing to see out of the compact car that would make it cannibalize sales? I think it's because the car is going to cost around $25,000 and have 240 miles of range. That gives the vehicle a cost per mile to buy of about $104. This is insanely cheap compared to other Tesla models and their cost per mile.

As a reference, the Model 3 RWD, the most efficient car Tesla has is $158 cost per mile and $42,990 price; and the Model 3 Long Range (which isn't available right now) is $140 cost per mile with 358 miles of range and a $49,990 price. The compact car blows these two out of the water at 240 miles of range. Imagine if Tesla finds a way to produce it with more range and efficiency.

Of course, not everyone cares about range. In fact, some would say that range is the least important thing in an EV, especially when you have home charging.

I think what matters is the cost and size of the compact car. If it's just a little bit smaller than a Model 3, it will most definitely cannibalize sales of the Model 3. If it's a two door vehicle that is a lot smaller than the Model 3, in the minds of customers, these will be two different vehicles and the Model 3 will be the luxury sedan still and the compact car compared to the Toyota Corolla.

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Tesla Model 3 and Model Y - How to Stop Them From Getting Cannibalized

Tesla can stop the Model 3 and Model Y from getting cannibalized by the compact car and potential compact SUV. The following needs to happen for this to be the case:

* Tesla must unveil these vehicles very close to their production and first delivery dates
* Tesla must make them much smaller than the current Model 3 and Model Y
* Tesla must make the range much less than the current Model 3 and Model Y

Let's tackle the first one. With the announcement of Giga Mexico and Tom Zhu wanting to break the Giga Shanghai building time of 9 months, we are going to see a compact announcement at the end of this year or early next year. Tesla won't be able to hide this car as they will need to take it out and test drive.

For the second one, Tesla must make a compact car and SUV much smaller than the Model 3 and Model Y in order to distinguish them as separate vehicles in the minds of consumers. Here are the current dimensions of the Model 3 and Model Y:

Model 3: Length: 184.8 inches; Width: 72.8 inches (without mirrors); Height: 56.8 inches
Model Y: Length: 187 inches; Width: 75.6 inches (without mirrors); Height: 64 inches

The compact car should be close to or less than the Toyota Corolla, with these specs: Length: 182.5 inches; Width: 70 inches; Height: 56.5 inches. That should be pretty achievable, but I think Tesla will make the car smaller than this. It will be more like a Honda Fit:

Honda Fit, 2020 Specs: Length: 161.4 inches; Width: 67 inches; Height: 60 inches.

Now we're talking. My Honda Fit was one efficient vehicle, and it was a full gas car. Tesla could keep the height even lower if they wanted and have it somewhere around 55 inches. If Tesla makes a compact car, it should make it the size of a Honda Fit, not a Toyota Corolla. A compact SUV should also be bigger than this, but smaller than the Model Y. Something like this:

Compact SUV Specs: Length: 170 inches; Width: 70 inches; Height: 62 inches. That puts the height close to the Model 3.

Lastly, if the range of these vehicles is the same as the Model 3 and Model Y, that is going to steer consumers, in my opinion, to the compact versions of these vehicles. The range for a compact car and SUV should be as follows (for a standard RWD version):

* Compact Car RWD Range: 240 miles
* Compact SUV RWD Range: 242 miles

This allows Tesla to use a much smaller battery pack in order to price these competitively at around $25,000 for a compact car and around $30,000 for a compact SUV.

Is there anything else Tesla can do to stop the compact vehicles from cannibalizing sales from the Model 3 and Model Y?

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

Image Credit, Tesla, Screenshot