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Tesla's Model 3 Is a 'No-Brainer' for Auto Enthusiasts

Demand for Elon Musk's latest electric vehicle, priced at $35,000 and capable of driving 200 miles on a single charge, is so high that sales could push the boundaries of allowable US tax credits.

by Matt Smith
Apr 8 2016, 2:30pm

Dozens of car buyers camp out at a Newport Beach, California Tesla showroom before the announcement of the new Model 3. (Photo by Eugene Garicia)

Jeff Cohen started off his electric car collection with a plug-in hybrid Chevrolet Volt. Later, he added a Nissan Leaf and a Tesla Model S sedan.

And in the past week, he has joined 325,000 other people who have put down a $1,000 deposit on Tesla's new Model 3, a car he calls a game-changer for the auto market. It's "a no-brainer," said Cohen, the president of the Atlanta Electric VehicleDevelopment Coalition.

"The quality is there, and I know that same quality is going to translate into the Model 3," Cohen said.

Tesla founder Elon Musk rolled out the Model 3 to enormous hype last week. At a base price of $35,000, the snub-nosed sedan costs less than half as much as its predecessors, the Model S and the Model X SUV. Its promised range of at least 215 miles (344 km) doubles that of the popular Leaf, and it's comparable to the expected 200 miles for Chevy's upcoming electric-only Bolt and a next-generation Leaf expected in 2017.

Electric cars make up about 1 percent of American auto sales, boosted by a federal tax credit of up to $7,500 plus some state incentives. But Scott Shepard, a research analyst at the consulting firm Navigant, said Tesla appears to be staking a claim for the Model 3 as the flagship car of a new mass market, as Ford did with the Model T more than a century ago.

"I don't think anything in the modern era of the automotive industry really compares in terms of method and volume," he said. While the Leaf and Bolt could offer similar claims, "The Model 3 appears to have the volumes that make the comparison more legit."

Cohen said the Model 3 may be the car the EV market needs to break into the bigger American market, with an updated Leaf and the Bolt close behind.

"A 200-mile car that my wife doesn't have to worry about range? She has no anxiety about going here or going there," he said. "She doesn't have to worry about plugging in a car that goes 200 miles."

Not only that, but longer ranges for most drivers mean they aren't running their batteries down as far in a day's driving, which extends the battery's life, Shepard said — no small benefit when a replacement costs anywhere from $2,000 to $5,000. And a car that can go 200 miles between charges means they could be used by taxi drivers or car-sharing services like Uber, "And that's a very big market."

But Tesla and other electric automakers could be facing some growing pains as well.

Related: Elon Musk Just Unveiled the Latest Chapter in His 'Secret Master Plan'

The huge number of orders Tesla has received will push the boundaries of the US tax credits, which start phasing out after 200,000 vehicles are sold. After that, the tax credit shrinks to $3,750 for six months, then to $1,875 for another six months, then zero.

Some of the people who put down their refundable $1,000 might get cold feet if they don't get the tax break, Shepard said. But others might be drawn enough by the Tesla brand and its luxury associations to stick with their orders.

"You can get a lot nicer-looking car with more advanced technology from the Model 3 than you're going to get from the Chevy Bolt," Cohen said.

Tesla told VICE News it isn't releasing a breakdown of where its Model 3 orders originate, so it's not clear how many of them might qualify for an American tax break. But it said it will provide buyers with "up-to-date information" about what incentives are available when they purchase a car.

"We'll do the same when it's time for customers to confirm their Model 3 orders," the company said. "Most importantly, we build our vehicles, including Model 3, to offer compelling value without any incentives."

And it's not clear how long it will take to get those orders off the assembly line and into customers' driveways. Musk said the first Model 3s will be out in late 2017 — but if you're in the tail end of the pre-order queue, you could be looking at the end of 2019 before you get your car, Shepard said. It's not clear what Tesla has changed from the Model S and Model X designs to make the Model 3 so economical, and the availability of batteries as it completes its own battery factory in Nevada might slow down the line, he added.

"They have admittedly had some supply issues in the past," Shepard said. "As they have admitted, they have had a bit of hubris when it's come to vehicle planning." But Tesla has set a target of building 500,000 vehicles by 2020, "Which is possible. They've got a lot going on."

And Cohen said Tesla "learned some hard lessons" from the Model X, which launched more than a year later than originally planned.

"It was too complex, had too many features, and this will be a simpler car to build," he said.

As for his $1,000 deposit, "I feel like I'm loaning Elon Musk at zero interest $1,000 to be one of the people helping to fund the Model 3 ... I believe in them, I believe in the company, and I'm impressed with the quality of my product."

Related: Here's Why Elon Musk Might Have Just Really Pissed Off Your Utility Company

Follow Matt Smith on Twitter: @mattsmithatl