On March 31, 2016, Tesla (TSLA) formally presented the Model 3 to the world. Initial reactions were quite positive, with many thinking that this vehicle would be a game changer for the electric space. Unfortunately, nearly two years later, consumers find themselves in a much different situation, and just recently, the situation got even worse for those that are waiting or were lucky enough to get one of the early vehicles.
First of all, Tesla still has not hit that magical $35,000 starting price yet, which leaves many reservation holders waiting. While the company originally promised that the standard battery version would go into production in late 2017, delays continue to pile up. In the recent 10-K filing, Tesla now states that "a variant" will be offered at $35,000, despite it still promoting the vehicle starting at that key price as seen below.
(Source: Tesla Model 3 home page)
Unfortunately, the last part of that description, "before incentives", is getting more precarious at this point for those in the US as well. With Tesla deliveries continuing to creep toward 200,000, the full $7,500 EV federal credit may not be available to many. This was a key selling point for those at the lower end, and should more delays continue before the standard battery goes into production, Tesla could lose a bunch of reservation holders.
A couple of months ago, I discussed the potential cost to own a Model 3, and how some comparisons didn't quite show the true reality. One of the items I mentioned was rising interest rates, which can either impact lease or loan rates for consumers. Since that article in mid-January, as seen in the chart below, the 5-Year Treasury rate has risen by 25 basis points.
(Source: cnbc.com 5-year US treasury page)
At the moment, Tesla does not offer a lease on the Model 3, so you either have to pay full in cash or get a loan. Back in Q3 2017, when the Model 3 originally hit production, Tesla was offering rates at 0.99% APR in the US, but that number has jumped by 150 basis points since, and likely will continue higher with more Fed rate hikes coming. For example, a $30,000, 5-year loan that sees a 200 basis point rise in rates means $300 in extra yearly payments, or $1,500 over the 5-year period. That's not small potatoes when you are appealing to the mass market.
Unfortunately, that's not even the worst news I have today. It appears that just recently, Tesla also hiked the cost of charging at its superchargers. This is significant because Model 3 consumers don't get access to charging credits, meaning they have to pay for all supercharging. As electrek details in this article, the cost hikes weren't exactly small (bold is mine):
But this week, the rates were updated across the US. Some states saw massive increases of as much as 100 percent – though most regions saw their rates increase by 20 to 40 percent.
For example, Oregon saw an increase of $0.12 to $0.24 per kWh, while California, Tesla’s biggest market in the US, got an increase from $0.20 to $0.26 kWh and New York’s rate went from $0.19 to $0.24 per kWh.
Tesla maintains that superchargers will never be a profit center, although one key bullish analyst once detailed how this would be a major revenue and profit leader for Tesla in the future. The increases to supercharger costs also brings into question the company's strategy to offer truckers $0.07 per kWh rates at its Megachargers once they are in operation, but that's a discussion for another day.
In the end, the hits just keep coming for potential Model 3 buyers. While the company continues to see more and more delays, and it just confirmed shutting down the Model 3 line in February, interest rates continue to rise and electric vehicle incentives may become more and more sparse. Now, the company has hiked supercharger rates quite significantly, thus reducing potential gasoline savings. Interestingly enough, Tesla shares have vastly underperformed the PowerShares QQQ/NASDAQ 100 ETF (QQQ) since the Model 3 launch as seen below.
(Source: Yahoo! Finance)
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