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15th of November 2018

Automotive



Booming Model 3 Sales Are Moving Tesla Beyond its Niche

Look at the latest data on US car sales, and you won't find much in the way of surprises. Ford's F-Series pickups reign supreme. SUVs and other pickups dominate the 20 most popular models in the country, along with cheaper sedans like the Toyota Camry and Honda Civic. Let your eyes fall to the bottom of the list, though, and you'll spot a newcomer: Elon Musk's Tesla Model 3.

Tesla says it delivered 56,065 of the small, electric, expensive sedans between July and October, making the Model 3 the 19th best-selling car in the country for the quarter. Take a closer look at the numbers, and you'll find that the upstart automaker is now moving so many cars, it's having a noticeable (and notable) impact on the broader industry. Fifteen years after its founding, Tesla has left the niche.

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“We really can’t brush them aside anymore,” says Tim Fleming, an analyst at Kelley Blue Book, which produces a monthly report on vehicle sales by brand, segment, and manufacturer. “Their sales really kicked up with the production of the Model 3.”

That’s particularly apparent when you compare Tesla to similarly priced luxury cars. There, Tesla ranked fourth in sales last quarter, ahead of industry giants Audi, Cadillac, and Porsche, plus a few others.

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KBB’s report also shows a 2.5 percent increase in what the industry calls “transaction prices” for new cars—the price a customer pays once options are added and discounts are taken off the base price. And the numbers indicate that Tesla, with an average transaction price of $67,815 overall, is largely responsible: Take the Muskmobiles out of the mix, and the overall increase is just 1.5 percent.

As Tesla continues to scale up production of the Model 3, it’s only selling higher priced versions, with a $5,000 premium package included. In October it introduced a new “midrange” model with 260 miles of range and a starting price of $45,000. But add in metallic paint, fancy wheels, and Autopilot, and the price climbs to more like $55,000. What's more, it’s still selling the Model S sedan and Model X SUV, which can cost as much as $150,000, fully specced.

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The big question for Tesla (and the analysts and investors who monitor it closely) is whether it can maintain this momentum. Presumably, many of the 400,000-plus people who reserved the right to buy a Model 3 will want the yet-to-arrive $35,000 version. Musk says the company can’t make that car and stay profitable yet, but promises to in six months or so. (Remember that Musk and deadlines have a tricky relationship.) Even if its sales do slow, Fleming says the Model 3's success is remarkable. Tesla’s market share increased from 0.5 percent this time last year to 2.1 percent in September. Brands like Jeep or Subaru have seen similar rises, but over four or five years. Tesla did it in eight months.

The Silicon Valley automaker's longer term plans include a small SUV called the Model Y, which, given the proclivities of US car buyers, may see even more demand than the Model 3. If Elon Musk gets it right, this won’t be the last time Tesla has a quantifiable impact on car sales.

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