Elon Musk Declares War on Dealer Network, Launches For-Real $35K Tesla Model 3

In the short term, the story from Thursday’s Tesla announcement is that Tesla finally has a $35,000 Tesla Model 3 sedan it can, and will, ship. Now. For $35,000. Just as he’s been promising for years. You can get one in 2-4 weeks, says the Tesla website. There will be new variants of the Model 3 that can be bought for $35,000, with other versions going as high as $50,000, plus options.

But the bigger story, bigger than any one car, is how Tesla will sell the car, and all other Teslas: online, just as Michael Dell and Jeff Bezos have done with their products. Tesla has been under fire from the auto dealer cartel that believes the only way to sell cars is the way it was done a century ago: auto dealers. In some states, the dealers succeeded in driving out Tesla by putting the screws to friendly state legislators. So CEO Elon Musk will close some sales centers, turn others into look-and-learn-but-don’t-buy galleries, and sell online or over the phone. That may be the trick play that lets Musk sell free from the dealer-network assault.

The Cost-Reduced $26,950 (Read: $35,000) Model 3

What you will get from Tesla with the least expensive, Model 3 Standard Range/Standard Interior edition sounds a lot like what you get with a Chevrolet Bolt EV or Nissan Leaf Plus:

Rear not all-wheel-drive, motor over the driven wheels
220 miles range (the comparable part), 130 mph top speed, 5.6 seconds 0-60 mph
Cloth seats and base trim
Manual seat and steering adjustment
Standard maps and navigation
Center console and 4 USB ports
Tinted glass roof
Auto dimming, power folding, heated side mirrors
Music and media over Bluetooth
Black paint. The other four offered colors add $500 to $2,500.
Availability in 2-4 weeks. All other trim lines will be delivered inside of two weeks.

The Model 3 is 185 inches long, versus 164 inches for the Bolt EV (238 miles) and 174 inches for the Leaf Plus (226 miles). To buy the cheapest Model 3, the one you’ll pay $35,000 for before taxes and fees, you click on the selection box marked $26,950. That’s the purchase price less $3,750 in federal tax credits (which for Tesla becomes $1,875 July 1) and $4,300 in Tesla-calculated savings compared with a gas-engine car of similar size such as a BMW 3 Series. You still write a check for thirty-five large.

Want more? The Standard Range Plus with Partial Premium Interior costs $2,000 extra, or $37,000. It provides 240 miles of range, 0-60 in 5.3 seconds, and a top speed of 140 mph. It has 12-way heated power seats with premium (or maybe partial premium) seat material and trim, upgraded audio, LED fog lamps, and docking for two smartphones as well as the four USB jacks.

The Premium Interior Model 3 comes in Mid-Range (264 miles) for $40,000 or Long Range (325 miles) for $43,000. It has 12-way power adjustable front and rear heated seats, 14 speaker audio, satellite-view maps with live traffic visualization, and web browser. Each of these models is a tiny bit faster (0-60 in 5.2 and 5.0 seconds, respectively).

The Dual Motor All-Wheel Drive Model 3 model (standard Premium Interior) offers 310 miles range, in Long Range ($47,000, 4.5 seconds 0-60, 145mph top speed) or Performance variants ($58,000, 3.2 seconds 0-60, 162 mph top speed).

For the base Model 3, for $35,000 you can have any color as long as it’s black. Red Multi-Coat adds $2,500.

Tesla’s Plan to Flank Car Dealers (and Save Money)

The most audacious part of Thursday’s announcement was that CEO Musk plans to close its factory-direct storefront sales outlets. Some will be closed outright. Some will become galleries, where you can see new Teslas. You’d still buy online, or over the phone. Tesla says in a blog post that the plan is to keep the company financially viable:

To achieve these prices while remaining financially sustainable, Tesla is shifting sales worldwide to online only. You can now buy a Tesla in North America via your phone in about 1 minute, and that capability will soon be extended worldwide. We are also making it much easier to try out and return a Tesla, so that a test drive prior to purchase isn’t needed. You can now return a car within 7 days or 1,000 miles for a full refund. Quite literally, you could buy a Tesla, drive several hundred miles for a weekend road trip with friends and then return it for free. With the highest consumer satisfaction score of any car on the road, we are confident you will want to keep your Tesla.
Shifting all sales online, combined with other ongoing cost efficiencies, will enable us to lower all vehicle prices by about 6 percent on average, allowing us to achieve the $35,000 Model 3 price point earlier than we expected. Over the next few months, we will be winding down many of our stores, with a small number of stores in high-traffic locations remaining as galleries, showcases and Tesla information centers. The important thing for customers in the United States to understand is that, with online sales, anyone in any state can quickly and easily buy a Tesla.

That also means that Tesla could in any state quickly sell a Tesla. Dealers in some states have pushed through outright bans on selling cars. For instance, in Connecticut, it can’t sell cars there and Tesla can’t even arrange delivery of a car bought out-of-state. In some states, Tesla had been working with legislatures, talking fairness — “this is the way we choose to do business; you don’t ban Amazon books because Barnes & Noble sells them” – and sometimes talking environment — “some people want EVs.” In some states, Tesla resorted to lawsuits (Michigan).

By selling online or over the phone, Tesla may flank most states’ restrictions. That’s Tesla’s belief. Auto dealer associations may well sue. The public generally dislikes the current car-buying process: the sales reps, pricing tricks, the hidden fees you only see when you get the paperwork (computer fees, document handling fees), being handed off to the F&I (financing and insurance) department that wants you to buy extended warranties, paint sealant, upholstery sealant, nitrogen-filled tires, alloy wheel and tire insurance, and insurance against being upside down (you borrowed so much the car is worth less than your payment balance). We’ve just come off the Presidents Birthday sales period, where dealers ironically invoke the names of our most honest past Presidents to move cars in a quiet month.

Over time, Tesla’s position is likely to prevail. No matter how much dealers and lobbyists cozy up to state legislators, they’re outnumbered by car buyers who’d like more car-buying options, but don’t donate on behalf of auto-buying choice. The direct sales mechanism also has the quiet — very quiet — support of some automakers and their executives. As cars grow more complex, it’s harder and harder to properly explain a new car’s technical features and advantages over competing cars. The automakers could live with the franchise system if they could incentivize dealers to not hire idiots, to not ask women if their boyfriends are helping them buy the car, and to get rid of the tack-on fees (sometimes $1,000 in total) that outrage buyers. The most costly purchase of your life after a house (and probably after putting kids through college) is buying a car. Buyers and automakers don’t want it to be a demeaning circus.

Meanwhile, another EV maker and startup, Byton, is preparing to come to market in 2020. It hasn’t announced yet if it will go through through a Tesla-like sales model, use dealers, or now possibly look at the direct-sales method with no sales centers, perhaps only galleries.

French automaker Peugeot is plotting a return to the US (it departed in 1991) but that may be a different situation. Those dealers, or their successors, may claim rights to be dealers again, unless Peugeot bought out all dealer rights when it went away.

So: Change is coming. We always knew Tesla would figure a way to produce a $35,000 car and set up a head-to-head battle against Chevrolet, Nissan and others. We didn’t know Tesla would do it by further upsetting the established order.

Now that a Tesla is down to $35,000 — the amount you write the check for, plus taxes — it’s competing more directly with big car companies that sell EVs. Many EV buyers may now decide body panel gaps don’t matter as much as the sizzle, performance, and features that Tesla brings. It may also expand the total market of EVs.

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