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The Take Down of the $35,000 Model 3 and Its Meaning to Tesla: Analysis and Opinion

Tesla Inc was smart for itself by taking down the mystery $35,000 price for a model version some have long been waiting for, hadn’t yet been built, not sure if it will ever exist, and that they were never really in a position to offer. They need to worry about surviving first, and you do that by making money. Period.

Let's start from Tesla's good intentions and the road to "production hell" as Tesla CEO Elon Musk called at the unveiling of the Model 3.

Good intentions and reality in the car business sometimes go different ways. It was noble quite frankly, for Tesla CEO Elon Musk to start with the intention of selling a more affordable version of the Model S with a new model in a smaller segment. The progression of events at Tesla made it seem it was the right place at the right time to offer such a car: namely the Model 3.

But as they went along further, things didn’t turn out the way they wanted to offer the car the way they intended. That’s how the car business goes. Apparently, Tesla can't make affordable Model 3 cars because the company will "lose money and die."

Tesla took down the $35,000 Model 3 price from its site because it realized it was never ready to build and sell high volume lower priced cars. They didn’t realize it that they were never really ready to at all. Not yet. They were smart to take it down as they could’ve been accused of false advertising. $35,000 is the goal. But not right now. There’s other things Tesla needs to pay attention to first and beforehand.

First Things First Please: Rolls Royce and Tesla Have a Lot in Common

Be careful making cars for well heeled, Rolls Royce can teach you a thing or two without learning the hard way. The fact of the matter is Tesla still needs that ala cart bespoke menu of high priced options to make money from better heeled EV buyers to survive for now. This reminds me of Rolls Royce Motors Ltd. back in the 1970s when they broke off from financially collapsed Rolls Royce Ltd, the jet engine people, into receivership to be nationalized by the British government until they could find a buyer, churning out Corniches and Silver Shadows for wealthy customers of all people, making hardly any money at all to survive. Doesn’t that seem odd?

Americans have a problem giving bailouts to GM and Chrysler, that the British are more forgiving about Rolls Royce. I tell you, I’d take back one of those 2009 car bailouts and give it to Tesla if I could. But I’m afraid we Americans are all tapped out on bailouts. So Tesla has to make this count because they only have a one shot deal to survive and time is running out unless an oil sheik or Chinese industry tycoon flush with cash comes in for the rescue.

It was a race against time as workers at the factory at Rolls Royce Crewe often wondered what will become of things. Tesla has its problems now. This was Rolls Royce the car brand back then, an institution in British history. It almost died there in the late 70s, the pinnacle premier British car maker so closely identified with British national heritage and industry like Concorde, the plane. In the end the now defunct Vickers took over the company from the British government and then the German car industry stepped in to save the factory at Cheshire Crewe and the Rolls Royce and Bentley brands, years later.

The Rolls Royce Solution: Restructure Regroup

That’s when Rolls Royce the original and historical storied car company died and rebirthed with BMW and where Bentley became its own with Rolls Royce legacy, the Crewe factory, and VW. The plant at Crewe survived but it had to sacrifice Rolls Royce the brand to do it. Maybe this is something Tesla needs to do to itself. Or have someone or something come in and do it for them.

It was a bittersweet trade for those middle and working class plant workers as the last Silver Seraph that was branded a Rolls Royce came down the assembly line at Crewe, some of them in tears, realizing they had to settle for just Bentley to ironically not see yet what would become of their own Bentley brand. This is why Her Majesty’s State Car is now a Bentley, not a Rolls anymore. Maybe one day Tesla will supply the US President with a high security electric state car while having its own Chevrolet-like Division meet its lower end customer base with $35,000 EVs under a new brand. But Tesla needs to get its house in order. Wishful thinking.

What Tent? Oh No, Not Another Tent!

In the end, even with that crisis tent, Tesla barely can make a Model 3 the way they want at all, as time ticks away toward insolvency. They barely can keep production at 5000/week. What happens when they need to crank it up to 10,000 in a few weeks for the global market? Another tent? I wouldn’t put it past them, it certainly would add more drama to the high stakes. My God, I’m now wondering if that current tent was truly a lifeline to actually save them, or a plug in the hull so they can navigate to shallow waters to finally and eventually abandon and sink the whole ship. Unless the Chinese step in to supply a larger more seaworthy vessel . . .

This isn’t Over Yet Folks

It seems Tesla needs to do some more soul searching. I don’t think their “production hell” is over. This is about a bunch of pretty smart young people defying car industry culture, running a young car company they put together on their own, to learn lessons from their mistakes, hopefully not life threatening that the car industry is laughing at them, and do it on the fly. These folks could be my kids that I find myself often routing for them, I still am, I love them all, Elon too, but they frustrate me, just as an older son or daughter would, when they’re this close to success and on the brink of collapse. I’ll be heartbroken, sincerely, if they fail. But business is business, and no one knows this better than Elon himself. And like deer between a pair of headlights, sometimes reality stares you in the face right before it’s too late.

The Ford Line of MPGs

You can only offer lower prices when you have the volume in inventory to make deals. This is how Ford did it back in the day if some of you folks remember, when cheap versions like Pinto MPG and Mustang II MPG came about (remember those? Those two cars are a different dragon I can slay at another time).

If Tesla lives as long as they are now to see the Model S survive this long, I’m sure they’ll have time down the road to revisit a cheaper Model 3 later. Even a cheaper Model S before the next gen model gets rolled out. If they survive. C’mon Tesla you’re that close either way. Focus to get it right!

DISCLOSURE: I’m a blue collar kinda guy of the retired cop category. The only investments I have that I know of, is what’s in my pension and in my investment retirement accounts, that my ex-Department put there. So I don’t know if I own Tesla stock, don’t give a crap if I do, I’m not bothering to look if you ask, and I’m gonna tell you the way it is anyway, whether you want to hear it or read it or not, or the way I tell you or not! Just wanted you to know, thanks.

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Interesting comparison. But I don't think that it holds up under scrutiny. Rolls Royce is over 100 years old, and had made their reputation on building custom cars for the rich, and airplane engines. But mismanagement and cost overruns in building a jet engine caused the company to liquidate their holdings in 1971, when the British government took over the company, and later in 1987 Rolls Royce was sold to the public via stocks. And later the automotive division and brand was sold to BMW and then VW. The problem with Rolls Royce cars in the 70s and especially the 80s was the same as what was wrong with Jaguar before Ford took over. They had build bespoke, custom cars using time honored techniques, but that meant that production was painfully slow and unreliable, and the price of each car skyrocketed. With Jaguar in the 80s Ford revamped and updated their factories, and the build quality and reliability improved dramatically. Similarly Rolls Royce and Bentley benefited greatly from the vast engineering and cash resources of BMW and later VW to enable their cars to be competitive (if still very expensive). I am not sure how any of their history relates to Tesla, which was a new startup company that started building cars just 10 years ago, and just started selling volume production cars 6 years ago, and higher volume cars with the Model 3 just last year. Sure Tesla is having teething problems because they are frankly new to the car business, and they have redefined many automotive building processes, some with greater success, and some having major difficulties. I wouldn't say the the build tent is a problem, or a sign of failure, but a necessary adaptation made to meet their production goals. As far as solvency and mass production goes, Tesla has a new agreement to build it's Gigafactory in Shanghai (July 10th), and is expecting to produce as many as 500,000 Model 3 and Model Y cars a year there. Granted it will take about 2 years for that factory to start producing cars, but even just looking at the huge Chinese demand for cars, it is a good bet that it is a smart move overall. Tesla had their opening day for the original Gigafactory on May 1st, and in addition to produce lower priced batteries and drivetrain components there, some Model 3 production might shift over to that location as well to meet production demands. I do not see it as a failure that they stopped highlighting the projected $35K Model 3. On their site it still does show the projected timeline for availability of their standard battery as being 6-9 months away, so it makes sense that they should stop promoting the economy model that is not available to buy today. Seeing that they have a 19 month backlog of pre-ordered Model 3s at their current prices, it doesn't really matter about the $35K model so much. Does it?
Dean I see you’re becoming my go to guy in the comments section. I love you I do, but I notice sometimes you take me too literally or look too closely between the lines: Two companies, niche luxury car business, both very tiny, one young, one old, both having severe financial difficulties on the brink of collapse, both customer demographics are well to do people, but both having a hard time paying their bills. Both shouldn’t be having the problems they have with what they’re selling and especially to who! That’s all you need to see Dennis, I don’t know how you can miss this? The problem looking back is that Rolls Royce wasn’t charging their customers enough for their cars. A Siver Shadow was about $84,000 USD in 1980 and the Corniche the convertible was only about $120,000 USD if I’m not mistaken. That’s a steal even in today’s dollars that it costs about $400,000+ for a new Phantom and .5 million+ for a Wraith convertible. You adjust that for inflation you’ll see. In the end BMW and VW took care of that problem because they’ve been around the car corners in more ways than Rolls Royce or Tesla to know how much money materials and labor goes into such a car to know exactly how much to charge such a customer to maximize profit on such a labor intensive car. Rolls and Tesla aren’t that good at those things because they didn’t get into the business they do for that sole reason. Ford GM VW BMW Daimler that’s all they do for decades at all pricepoints. Two kids good at what they do lost in the woods that they need a big brother to help them along . . . Cost overruns, yeah, but delays, nah if it’s that good a product or they really want it people will wait, that had little to do with either company. And here’s Tesla starting a new line of cars because they wanted to help poor people. That’s like Rolls giving Bentley over to become another Kia to do the same! Get it now Dean? Stop overlooking. Stand next to me, and together let’s start taking two or three steps back.....
I don't see Tesla as a niche car company that caters to the super rich like Rolls Royce is. I do not think that I have personally ever met anyone who bought a Rolls Royce new, but my next door neighbor owns a Tesla Model S. The automotive division of Rolls Royce has always been a niche/custom car company. And small specialty companies like that need deep pockets to stay in business, and it helps to have vast resources like BMW and VW to bring new technology and building techniques to keep their products competitive. I do not think that Tesla is trying to help poor people. They have been trying to build electrical cars that are comparable or better than gasoline powered cars. And they have succeeded in disrupting the auto industry by providing real competition, especially in the performance/luxury market.
You’re stil too close to the wall Dean and I can’t help you. You read too much on the internet about oil shieks buying Rolls. Ok? They’re both niche car companies that design specific kinds of cars for a particular customer base within certain income brackets. One is about batteries, the other Connelly hides. Most people can’t afford the lowest priced Bentley or Rolls, and neither any kind of Model S or X that’s for richer people and not necessarily an oil shiek. Ah, Dean, that’s why we’re here with the Model 3, see how you’re still close to read in between? Let’s just move over to the next story.
Yes Al, we will have to agree to disagree on this one. Rolls Royce sold 3,362 cars in 2017, whereas Tesla sold over 100,000 cars in 2017, with only 1,724 of those being Model 3s. And there is still a reserve list of 450,000 Model 3s due to be delivered. So I would definitely put Tesla in a different market than Rolls Royce and Bentley despite the similarity of being an automobile manufacturer.
Dean please. You are only using the last year of Tesla sales ok? The last year was a frantic attempt to go mass market. You forget about the years prior. Actually you help my case: Tesla should stick to their current business model and abandon mass market, as they made things even worse. Go upmarket not down. Thanks Dean! A boutique niche car company that makes select not only EVs but BEVs to targeted demographics in select markets. If that’s not niche I don’t know what else is Dean. Half of those customers I bet if they can afford to buy a tricked out X at the minimum can buy or finance a new or a used CPO Spur. They all share commonality in demographics Dean. And they know it. That’s why they readjusted their boutique ala carte menú of high priced options OK? Regardless, the point you missed was to look at history as a lesson something one should do regardless of circumstances that you’re so quick NOT to do because you think oil sheiks only buy Spurs. I had a bunch of clients not far well off than I live that prove otherwise who probably have an S or X in their garage now with their Bentley or Mercedes V12 AMG. Either way my case stands. Nice try and very good engagement Dean. Thanks for the discussion. We’re done.
In honor of this article I decided to play a game over lunchtime and count the number of Teslas that I saw on the road driving to lunch and back. It ended up being (14). That included (11) Models S and (3) Model 3. That doesn't count the transport truck with Ten Model 3s that I saw on the highway. Contrast that to how many Rolls Royces that I saw today (Zero), and how many new Rolls Royces that I have seen on the road over the whole last year (Zero). In fact, over the past year I have seen only (1) 80s Rolls, and (1) 90s Bentley. That's one each for a whole year! I have actually seen more Lamborghinis, Ferraris, and McLarens (which are still extremely rare) than Rolls and Bentleys. I see more Teslas than Porsches (including Boxsters, Macans and Caymans) and I noticed about 6-7 of them driving today. Is Porsche a boutique, niche car company? Keep in mind that Tesla (like GM) is just about to lose their full federal subsidies because they just passed their 200,000 EVs sold mark 3 weeks ago. The Model 3 accounts for about 50,000 of those sales. In contrast last year was a record sales year for Rolls Royce, selling 4,011 cars (worldwide), and they sold under 30,000 cars over the past 10 years altogether. And before the German reboot in 2010 they were only selling about 1,000 a year. Yes, the Model 3 is changing Tesla's status as a volume automaker. With over 50,000 Model 3s sold, that is more BEVs than any other automaker in that time period. More than the Bolt and Leaf combined.
You’re hanging in the wrong parts Dean. Keep counting your Teslas. Make sure you separate the new ones from the old. While you’re looking for oil shieks I’ll have Mrs Kahn my former client call you as to how she got that Spur and an X in her garage. :) AC