Tesla Motors (NASDAQ:TSLA) is flooded with an unexpectedly huge number of orders right now. The company has already received orders for 400,000 copies of its recently-launched Model 3, its new mass-market sedan. CEO Elon Musk himself didn't expect this kind of response from Tesla fans all over the world. He actually tweeted that he was expecting only a quarter to a half of the number of orders actually received.
Musk believes that if this trend continues for some more time, pre-orders could hit as much as 500,000 units sooner than anticipated. In that case, Tesla may require more capacity than it had originally planned for the Fremont plant for the year 2020. As a result, the company has revised its build plan from 2020 to 2018, with the goal to produce 500,000 units of the Model S, the Model X, and the Model 3. On top of that, it is also considering bringing up a new plant in Europe in order to meet the huge demand.
What's more, by building a plant in Europe, Tesla will be able to tap a booming electric vehicle market in the continent that is currently dominated by the likes of the Nissan Leaf and the Renault Zoe. In fact, Europe is a key market for Tesla since it accounts for close to a third of its sales, so building a plant in this region will allow it to cater more efficiently to this market.
Where Tesla stands in Europe
Europe is a booming market for EVs. For instance, sales of electric cars and plug-in hybrids in Europe for the first quarter of 2016 increased 29% as compared to the same period last year. A total of 23,160 electric and plug-in vehicles were sold during the three-month period between January and March, accounting for over 1% of total new car sales in the European market.
The following chart shows which model stands where in the race for EV dominance in Europe:
According to the European Alternative Fuels Observatory (EAFO), the Nissan Leaf leads the European Battery Electric Vehicles (BEV) industry with sales of 6,168 units in the first three months of 2016, giving it 26.6% of the BEV market. Tesla's Model S stood third during the quarter with a sales figure of 3,378 units after the Renault Zoe, which sold 5,578 copies. The Model S was placed fourth at the end of February, so sales of the vehicle increased remarkably to finish third by the quarter end.
In my opinion, this is a robust performance from Tesla considering the price point of the Model S. For instance, the Nissan Leaf retails for £24,490 for the Acenta trim and goes up to £26,490 for the Tekna trim in the U.K. On the other hand, the Renault Zoe starts from £13,945 in the U.K and goes up to £16,045, before optional extras. In comparison, the Tesla Model S pricing starts from £58,600 in the U.K. and goes up to £96,900, placing it right in the luxury car territory.
Thus, it is evident that despite premium pricing, the Model S has managed to take the third spot in the European EV market. What's more, the car has also taken away sales from traditional luxury car makers in Europe.
In fact, Tesla led the luxury car market in Western Europe last year, surpassing sales of the Mercedes S-Class by a good 800 units. As a result, the likes of Mercedes, BMW, Audi, and Porsche have started feeling the pressure, accelerating the development of their own all-electric cars. This means that Tesla has established itself already in two different markets in Europe - the EV segment and the luxury segment.
Now, with the Model 3, it will be able to tap a greater share of the EV market, while also attack the entry level luxury segment.
How the Model 3 can help Tesla succeed in Europe
It is estimated that Tesla will launch the Model 3 for £24,400 for the basic model, which might go up to £29,400 after optional extras. This means that Tesla will price the Model 3 close to the Nissan Leaf, which is the best selling EV in the world with 211,000 units sold in the past six years. What's more, this price level is actually lower than the average price that a consumer pays for a new car in the U.K.
Therefore, it won't be surprising if Tesla manages to eat into the sales of the Nissan Leaf going forward and even lead the EV market in Europe considering the price point, brand value, and features on offer. Additionally, at this price point, Tesla will be able to compete effectively with the likes of the BMW 3-series, the Jaguar XE, and the Mercedes C-Class.
For instance, the Mercedes C-Class has a starting selling price of £27,665 for the base petrol model. Meanwhile, the C-Class C350 E, which is Mercedes' plug-in hybrid model, goes for £38,270 pounds in the U.K. Thus, Tesla's Model 3 will turn out to be cheaper than Mercedes' entry-level luxury sedan, and also its hybrid version.
Tesla's European supercharger network will be a tailwind
Thus, Tesla has priced the Model 3 right, so it would have won half the battle when it launches the car by the end of next year. More importantly, Tesla already has a strong supercharger infrastructure in place in Europe and is on track to bring online more charging points by the end of this year. Take a look at the following graphic for example:
Source: Tesla Motors
Tesla already has a robust supercharger network in the central and southern parts of Europe. The company is on its way to a massive expansion this year. Musk has said that Tesla's worldwide supercharger network will double by the end of 2017. This expansion that is to happen this year has been projected in the above two pictures available on Tesla's website. Tesla will be expanding both toward the east and the west in Europe.
This is important as the demand that the Model 3 has generated is huge. So, once Tesla starts supplying in Europe, a strong charging network will be required. In addition to superchargers, Tesla will also install 150 so-called Destination Chargers allowing the car owners to charge the car's batteries while they take a break in their journey at destinations such as hotels, restaurants, shopping centers and ski resorts.
Europe is already an important market for Tesla Motors with a third of the company's sales coming from this region. With the cutting-edge pricing of the Model 3 and the company's growing charging network in Europe, Tesla will be able to gain share in the continent's EV market, along with the entry-level luxury sedan market. Thus, Tesla's Model 3 looks set to be a winner in the European market.
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