The pricey version of the Model 3 is in keeping with Musk’s earlier practices with the Model S luxury sedan and Model X sport utility vehicle -- adding options and higher specifications to help generate cash that can be used to eventually build vehicles for mainstream buyers.
Shipping a minimum-cost Model 3 right away “would cause Tesla to lose money and die,” Musk said on Twitter. The company needs three to six months after achieving production of 5,000 units a week before it can ship a $35,000 Model 3 and survive, he said.
Burning Cash
The company burned through more than $1 billion of cash in the first quarter and may need to tap capital markets for more than $10 billion by 2020 to fund its car-making operations, new products and expected expansion into China, Goldman Sachs Group Inc. analysts said last week. Mounting liquidity pressures and challenges with Model 3 production prompted Moody’s Investors Service to cut the carmaker’s credit rating further into junk status in March, adding fuel to a sell off of the company’s bonds to all-time lows.
For every additional thousand dollars that ends up being added to the price of Model 3, the size of the U.S. auto market that buys cars that are that expensive shrinks by 1 percent to 2 percent, according to Kelley Blue Book. That’s a trade off the company is willing to make.
The profit is in the higher trims, Ivan Drury, senior manager of industry analysis at Edmunds.com, said by phone. “The idea that it’s supposed to be a car for everyone is kind of laughable,” Drury said. “Anyone who wanted a base model may have to wait years out.”
This article was provided by Bloomberg News.