Three telltale signs that Tesla’s Model 3 is a hit
In 2017, Tesla began production of the Model 3, its entry-level high-volume electric vehicle. A major step forward in its mission to help the world become zero-emissions by ultimately replacing internal combustion engines. Tesla’s first two products the Model S and X changed consumer expectations for electric vehicles (EV). However, with a MSRP north of $100k for long-range options, the Model S and X mainly stole market share from luxury OEMs such as Mercedes-Benz and BMW. At the time, OEMs that employed a business model that is driven by volume were “safe” from Tesla’s competitive threat.
A man named Robert ‘Bob’ Dylan once said, “the times are a-changin’!” and the Model 3, with 220-mile range and a starting price of $35,000 is positioned to transform the automotive landscape. To evaluate, the Model 3’s down-market disruptive potential, Arity’s Financial Data Solutions team recently investigated whether or not Elon Musk’s ambitious new offering has the potential to induce a new wave of first-time EV adopters. After analyzing Arity’s proprietary data, our findings reveal three factors that signal positive trends in consumer behavior for Tesla.
Quick Adoption of the Model 3
Our analysis of Tesla’s Model 3 sales figures reveals very strong early performance. The average MSRP for a new vehicle is $36,000. The Model 3’s price of $49,000, along with the $7,500 federal tax credit, allows Tesla to go head-to-head with down-market OEMs. When paired with the halo effect of the Tesla brand, it’s not a large leap to understand why consumer adoption for Model 3 was faster than for any previous model. Indeed, Tesla made a smart bet on the Model 3.
Team Tesla is Loyal and Growing
The results are in, Tesla customers are a very loyal group. In Q1 2018, 47.7% of Model 3 purchasers previously owned a Tesla. This is quite sizeable, especially since 6.3% of Model 3 owners previously purchased a Toyota. The previous purchase gap between Tesla and Toyota owners may be explained, by the type of customer Tesla purchasers are – early adopters with disposable income, and direct access to previous Tesla customers for cross-sell activity. This theory is supported by the Q2 sales volume parity between Tesla and Toyota, where 8.9% previously purchased a Tesla.
The Tesla Effect Comes Down-market
To date, Tesla Model 3 sales have been strong and through the beginning of September, we saw even greater acceleration. This is alarming news for down-market OEMs. Arity’s data shows that consumers purchasing Model 3s overwhelmingly did not previously purchase a luxury brand such as Mercedes-Benz and BMW. This indicates that the more-economically-priced Model 3 is indeed appealing to a different audience than the Model S and X. More specifically, we see the Model 3 stealing market share from the likes of Honda, Toyota, and Ford.
Sales and customer loyalty are important measures of success in the automotive industry. Clearly, Tesla has issued the first challenge to the tried and true auto manufactures and they have a clear first-mover advantage in the EV space. But one thing is for sure, the other auto manufacturers aren’t going to standby idly. With Mercedes-Benz and Audi recently entering the EV space, it’s clear that OEMs are going to fight Tesla’s challenge to the death.