Why the $35,000 Model 3 might not arrive until 2019

Tesla’s Model 3.Hollis Johnson/Business Insider

• The Model 3 was presented as Tesla‘s first mass-market vehicle, but so far, Tesla has only made premium versions of the Model 3 with long-range batteries.
• Tesla CEO Elon Musk gave a timeline in May that suggested deliveries of the $35,000 base-priced Model 3 could begin between the end of September and the end of December.
• But it’s more likely those deliveries will begin in 2019 as Tesla focuses on generating higher profits with more expensive models, according to Jeremy Acevedo, a manager of industry analysis for Edmunds.
• Tesla declined a request for comment on this story.

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The turbulent history of Tesla’s Model 3 has been well-documented. Praised by reviewers, but subject to production delays and reports of inconsistent quality, the vehicle has put pressure on Tesla to prove it can transition from a luxury automaker to a mass-market one.

In June, the company met a long-delayed goal of making 5,000 Model 3s in one week, but in addition to sustaining that rate of production, it has a new hurdle to clear: delivering the $35,000 base-priced version of the Model 3 that prompted Tesla to make the car in the first place. So far, the company has only made premium versions of the Model 3 with long-range batteries. The least expensive Model 3 currently available starts at $49,000, according to Tesla’s website.

In May, Tesla CEO Elon Musk suggested the company would start delivering the $35,000 model three to six months after reaching its 5,000-per-week production goal, which meant deliveries would start sometime between the end of September and the end of December. Musk pushed back that timeline in June, saying Tesla would start making $35,000 Model 3s near the end of 2018 and aim for mass production in 2019. Tesla is even more conservative on its website, which says the base model will be available in four to seven months.

Tesla declined a request for comment on this story.

The $35K Model 3 may not arrive until 2019

According to Akshay Anand, an executive analyst for Kelley Blue Book, and Jeremy Acevedo, a manager of industry analysis for Edmunds, the timeline listed on Tesla’s website is the most realistic. Both said it would be highly unlikely for deliveries to begin in September and more likely for them to begin in 2019.

That schedule is likely to concern some customers, as they will begin to lose access to a $7,500 tax credit for Tesla vehicles beginning in January, when the credit gets cut in half. While Tesla has had no problems generating demand for the Model 3 (the company said in a regulatory filing that it had around 420,000 net reservations for Model 3 at the end of June, though it has since stopped taking reservations), the long wait for the base model will turn away some customers who would have otherwise bought it, Acevedo said.

“They can expect, I think, a substantial amount of people pulling their reservations,” Acevedo said.

According to Acevedo, the primary reason for the delay is Tesla’s quest to become profitable. The company said in its second-quarter earnings letter this year that it expects to post consistent profits starting in the third quarter, and the high-end Model 3s generate better margins than the base model would. In August, analysts from the investment bank UBS tore apart a Model 3, analyzed its construction, and projected a $35,000 Model 3 would generate a loss of $5,900 per vehicle.

Quality is more important than speed

In the near term, Tesla is going to focus on the more profitable models, Acevedo said. Musk indicated the same in May, when he said Tesla would “lose money and die” if it started delivering the base model. That may frustrate some of those who were among the first to reserve a Model 3 in March 2016, but, according to Anand, it’s important that Tesla prioritizes quality over delivery speed for all versions of the Model 3.

Some customers have reported significant problems with their Model 3s and other Tesla vehicle shortly after receiving them, and Business Insider reported in August that a much higher percentage of Model 3s produced at the end of June required rework than a car at the average auto plant. 

The $35,000 Model 3 will reach new customers for Tesla, some of whom won’t own multiple vehicles. If their Model 3 breaks down, so will their commute. While Tesla gets more leeway from customers over quality issues than other brands, Anand said, some of its new customers might not be as patient.

“I think quality has to be their top priority,” he said.

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