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04 August 2017

Is Tesla’s Model 3 a Mainstream Car?

The Model 3 is Tesla’s mainstream car, but can it really fit into the mainstream of the market?

It’s a compact sedan with a 220-mile range and an entry price less than $300 more than the average new car in the U.S. But is the Model 3 really a mainstream car? Is it something that the average buyer is going to want, or is it still on the fringe of the automotive world?

According to auto analyst Rebecca Lindland, writing for Fortune, the answer is no.

“Calling the Model 3 mainstream is a bit of a misnomer,” she said.

“The only thing mainstream about the Model 3 is the price,” Lindland added.

SEE ALSO: The Era of the Tesla Model 3 Has Begun

Lindland makes some good points. Fewer than 1 percent of all new cars sold are electric in the U.S. That’s just 159,000 vehicles out of a total of 17.54 million cars and light trucks sold last year. That puts EVs firmly in the realm of the early adopter, with limited interest for now from the mainstream.

“Over 16 million unique shoppers come to Kelley Blue Book every month to research cars. Only about 3 percent research luxury electric cars,” Lindland said.

There are also the tax credits. Federal tax credits start to go down once an automaker hits 200,000 and at its expected sales rate, Tesla will hit this before mid next year. The credit won’t disappear immediately, but buyers may be dissuaded when the price of entry climbs.

“While some states are offering incentives, a new trend is for those states to not only apply a salary cap to eligibility for a tax credit, but impose fees on electric vehicle owners to make up for not paying taxes on fuel,” said Lindland.

Other automakers are also joining the fray. Some companies have been in the segment for years, like Nissan with the Leaf and Mitsubishi with the i-Miev. But more are building EVs of their own. They’ll likely see the full tax credit after Tesla’s has run out. And the bigger automakers have bigger dealer networks.

But what does it take to make a mainstream car? Tesla is hoping to produce 500,000 Model 3 sedans every year. That’s enough to outsell every car line in the U.S. last year and account for about 2.9 percent of the total market. That moves it out of early adopter territory in just a year.

That sales volume would place the Model 3 third for all cars and light trucks after the Ford F-Series and Chevrolet Silverado. If being the best selling car in the country isn’t mainstream, what is?

Now not all of those sales will be in the U.S., but selling 500,000 cars worldwide is still no small feat. It would put the Model 3 at number 22 in the world, just behind the Honda Accord and Volkswagen Tiguan, and ahead of the Toyota Prius, Chevy Cruze, and Ford Fiesta.

When tax credits run out on the Model 3, it’s still a $35,000 compact luxury sedan. That puts it up against the BMW 3 series and Mercedes-Benz C-Class – two cars that are very mainstream in most of the country, that offer zero tax credits as an incentive to buy them. They stand on their own merits as cars, something the Model 3 seems able to do. Fuel taxes aren’t stopping sales of gasoline cars, so why would a road tax stop EV sales?

Tesla has also expanded its network of dealerships and service centers. There will be 100 new service centers, 350 new mobile techs, and 1,400 more service staff. As sales increase, that network will likely grow to fit. Electric vehicles generally need less maintenance as well, which means they can do more with fewer service bays.

So as it stands, the Model 3 might not be mainstream. Yet. But if the company is able to hit its targets, that could change quickly, putting Tesla firmly in the mainstream.

Fortune

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