Tesla Motors is actually benefiting from a sort of reverse cannibalization as sales of the $70,000-90,000 Tesla Model S have increased after the announcement of the 2017 release of the $35000 Model 3.
Tesla is seeing is that all the excitement and interest around Model 3 is actually boosting demand for the Model S and Model X. Many customers reserved a Model 3 purely on the strength of Tesla’s brand and reputation. The vast majority of Model 3 reservation holders (93%) had never had any prior experience with the company or its vehicles.
Tesla is also gently encouraging Model S and X sales since it is giving Model 3 production priority to current vehicle owners. The company is doing this as a special thanks to all the customers that have helped it get to where it is today. It might sound extreme, but a faster route to taking delivery of a Model 3 is to buy a Model S or X now, in order to get priority status.
Many people are averse to test driving a car that they have no intention of buying, in part because they expect a hard sales pitch after the test drive. Plus, they don’t want to feel as if they’re wasting a salesperson’s time. This expectation has been drilled into our heads thanks to the antiquated dealer model, and the related high-pressure sales environment that we’ve all come to know and love. This is especially true for high-end luxury cars.
In contrast, Tesla employees are more than happy to grant most people test drives. Since they’re primarily compensated on education rather than sales, they’re often happy enough just showing off the car to spread the word. Sure, they’d prefer if you bought a car, since they will get a small commission, but their compensation is not predicated on sales volumes.
Most people are not aware of this, and as such have never test driven a Tesla vehicle. Customers that have placed a Model 3 reservation feel more entitled to a Model S test drive just to experience a Tesla vehicle. But once those people test drive the Model S, they don’t want to wait the 18 months (or more) to buy a Model 3. A lot of these customers would rather just buy the Model S right now.
Tesla Motors is stepping up production plans for its upcoming Model 3 mass-market sedan and would build a total of 500,000 all-electric vehicles in 2018, two years ahead of schedule, but warned that spending will ramp up in tandem.
The company, which three months ago aimed to make a net profit in the final quarter of this year, gave no profit target on Wednesday and said capital spending would rise about 50 percent more than previously forecast this year, to around $2.25 billion.
Tesla reported a wider first-quarter net loss, although results broadly beat Wall Street targets. It also said it was on track to deliver 80,000 to 90,000 electric vehicles this year, as it accelerated its target for Model 3 output.
SOURCES – Reuters, Tesla, Motley Fool