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Why Tesla's $35,000 Model 3 Won't Be A Hit

Why Tesla's $35,000 Model 3 Won't Be A Hit
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Last night, Tesla (NASDAQ: TSLA) confirmed via Twitter (NYSE: TWTR) a story published in Auto Express saying that its Gen III model will be available in 2017 and only cost around $35,000.

That means that Tesla's newest vehicle, the Model 3, will sell for about half as much as the Model S and the Model X.

While that puts it at a much more approachable price range for the average consumer, that doesn't necessarily mean you'll be seeing a surge of Teslas on the road.

Does Lower Price Mean Lower Performance?

Senior Kelley Blue Book analyst Karl Brauer said that while the pricing of Tesla's next sedan is an interesting component, the real question is how far it will go on a single charge.

The electric car market already has a number of cars selling at about $35,000, Brauer said, and they all have about the same driving range of 60-90 miles. The 2014 Nissan Leaf has an EPA-estimated driving range of 84 miles, while Chevrolet's 2015 Spark EV gets about 82 miles per charge.

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The driving range restraints experienced by vehicles already in this price range keeps owners figuratively tethered to charging stations, KBB executive market analyst Jack Nerad said. “In comparison to the ubiquitous nature of gasoline stations, charging stations are few and far between,” Nerad said. If Tesla's Model 3 can't substantially increase the typical driving range for vehicles in that price bracket, Brauer said, sales will remain on par with the others -- meaning, not great.

Size Matters Auto Express reported that the Model 3 is also rumored to be about 20 percent smaller than the Model S and feature cheaper battery technology. “Given Tesla's next car, the Model X, has already been confirmed as smaller than the current Model S, with a lower driving range, we're already seeing a degradation in performance from future models,” Brauer said.

The only way that this new model will have an impact in the current auto market is if Tesla can figure out the driving range and charging station issues, Nerad said. “Otherwise, the EV segment will remain a niche,” he said.

Latest Ratings for TSLA

Oct 2017Evercore ISI GroupDowngradesOutperformIn-Line
Oct 2017Morgan StanleyMaintainsEqual-WeightEqual-Weight
Oct 2017Standpoint ResearchDowngradesHoldSell

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