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October 25, 2018updated 07 Jan 2020 11:02am

Tesla sees more mass-market potential for Model 3

Tesla has said it sees mass-market opportunities for its Model 3, based on customers' willingness to trade in more downmarket vehicles when reserving the $35,000-and-upwards sedan.

By Lorenzo Migliorato

Tesla has said it sees wider mass-market opportunities for its Model 3, based on customers’ willingness to trade in more downmarket vehicles when reserving the $35,000 (£23,000)-and-upwards sedan.

The company – which in Q3 turned a profit for the third time in its history and the first in two years – said in its quarterly statement that “more than half” of the cars traded in by customers who reserved a Model 3 had a retail value below $35,000 when new, signalling an appetite for pricier vehicle segments on part of prospective Tesla drivers.

“It is clear that customers are trading up their relatively cheaper vehicles to buy a Model 3, even though there is not yet a leasing option,” the company said. “This leads us to believe that the total market potential for Model 3 is larger than just the premium sedan market.”

Tesla, whose deliveries of the Model 3 has been constrained by manufacturing capacity, said it been “working hard” to bring a low-priced variant of the sedan to market. The Model 3 is currently only available in North America, with a starting price of $49,000. The $35,000 variant is due to launch in the first half of 2019.

Nevertheless, the fact that cars with – effectively – a 40% cheaper original retail price were being traded in for the $49,000 variant added to Tesla’s conviction that there was potential for further mass market expansion.

“We are expecting most of the remaining reservations to gradually convert to orders as we launch more versions of Model 3, introduce other financing options, and being sales outside North America,” the company said.

The Californian carmaker reported $220.4m in direct leasing revenues for the third quarter, down 30% year-on-year. This compared to a 183% uptick in automotive sales revenues, which reached $5.8bn, leading to a profit of $311m.

Tesla mostly relies on banking partners for leasing and financing around the world – which for the UK include Barclays Partner Finance and Lloyds’ Black Horse – revenues from which were not accounted for in its statements.

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