On Thursday, Tesla delivered at last on CEO Elon Musk’s ultimate promise: a $35,000 electric car.
But the company managed to achieve this triumph in just about the least inspiring way possible—with a special announcement that included layoffs, store closures, and financial red flags. By Friday morning, the company’s stock had dropped 8 percent.
The new base Model 3 will come with less range and a less fancy interior than previous versions, and it will be available only in black. A supercar it isn’t, though the performance remains impressive for a vehicle of its price. Regardless, it meets the minimum requirements of Tesla’s longtime pledge to build an all-electric family sedan with good range at a price that’s affordable to people who aren’t wealthy. You can order one right now on Tesla.com, and it will arrive in two to four weeks.
Of all the concrete ambitions Musk has set for Tesla, this one proved elusive even as it shattered expectations in other respects. I’ve been badgering the company about the goal ever since the Model S launched in 2012. Back then, a Tesla rep told me the affordable sedan would probably come in 2015. Over the years, that date got pushed back again and again. Tesla started taking orders for the Model 3 in 2016, but only for more expensive versions, which began limited production the following year. Asked again about the $35,000 version in May, Musk said that lowering the price at that time would “cause Tesla to lose money and die.” Until this week, the cheapest Model 3 cost $42,900.
Now, four years after it was announced, the $35,000 Model 3 is finally here. (Whether that’s truly “affordable” is another debate, but it’s the benchmark the company set for itself long ago.)
Yet, if the cost to consumers is reasonable, the price point has taken a toll on Tesla, its workers, and its shareholders—not to mention Musk’s mental health.
The company already went through “production hell” to meet milestones, raising questions about worker safety and the car’s reliability. Now, to make ends meet, Musk said that Tesla will have to close physical stores around the country, laying off many sales workers, as it begins selling cars only online. It will keep a relatively small number of showrooms in high-profile locations. At the same time, Musk shifted from predicting a profitable quarter to another loss, spooking investors.
In a call with reporters Thursday, Musk did not even try to dress up the shift to all-online sales as some kind of strategic masterstroke. He said that there was “no way around it” and that it would save the company 6 percent on the cost of each car. “It’s excruciatingly difficult to make this car for $35,000,” Musk said, according to the Verge.
As the Drive’s Edward Niedermeyer pointed out, it’s a dramatic shift: As recently as December, Tesla had boasted about opening 11 new retail stores, and it was still lobbying New Jersey in January to open more. Now Tesla will be scaling back its physical presence at a time when it’s under fire for reliability problems, which recently cost the Model 3 its coveted Consumer Reports recommendation. Despite the store closures, Tesla said Thursday that it will increase investment in service, with most service now done by sending Tesla representatives to drivers, rather than having them bring their cars in to the shop. And with fewer stores offering test drives, the company will now allow drivers to return a vehicle within seven days or 1,000 miles for a full refund.
To investors, these moves carry a whiff of desperation. In addition to the base Model 3, Tesla dropped prices on other versions and models Thursday. CNBC’s roundup of analyst responses suggests that many are concerned the cuts are a sign of reduced demand, which would be ominous: For all of Tesla’s other problems, wildly strong demand has been the constant that has kept the company afloat. Musk didn’t exactly soothe those fears on Thursday: He said his “gut feel” was that the company could sell 500,000 Model 3s per year, which would be quite strong, but he added, “I don’t know what demand is. We’ll see.”
It’s hard for me to imagine demand will falter. Plenty of would-be Tesla buyers over the years have told me they dearly wanted one but were holding out for the $35,000 version. A bigger worry might be profit margins: Musk flatly refused to answer a question about how much profit Tesla would make on each Model 3.
The disappointment surrounding Thursday’s news would have been hard to imagine until recently. If you had told Tesla supporters a decade ago, a half-decade ago, or even three years ago that the company would indeed eventually deliver an all-electric, four-door family sedan with 220 miles of range, sports-car acceleration, and a charging network that spans much of the country, they would have been amazed and thrilled. Instead, the news comes cloaked in grim trade-offs and shadowed by Musk’s run-ins with the Securities and Exchange Commission.
But the company’s turmoil and financial straits shouldn’t entirely obscure what it has accomplished here. Musk, for all his warts, showed once again that he cares more about Tesla’s original mission of making electric cars mainstream than he cares about making money or mollifying investors. While blown deadlines and not-quite-kept promises have become par for the course over Tesla’s history, Musk and his company have stayed remarkably true to the long-term master plan he laid out back in 2006. And the fact that other companies beat Tesla to its goal of building an electric car for the masses is a testament to the power of Musk’s vision: Those companies had no such plans until Tesla showed that it could be done.
In other words: Even if the $35,000 Model 3 turns out to be a Pyrrhic victory for Tesla, the victory for electric vehicles—and, potentially, the environment—is real.