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Industryweek 10739 Tesla 3

Tesla Model 3 Pre-Orders Surge to 325,000 in First Week

April 7, 2016
The pre-orders represent about $14 billion in implied future sales. 

Tesla Motors Inc. said it has received more than 325,000 reservations for the Model 3, far exceeding its expectations as customers line up to pre-order the $35,000 electric car more than a year ahead of when the more-affordable model is slated to hit the streets.

The pre-orders represent “about $14 billion in implied future sales, making this the single biggest one-week launch of any product ever,” the company said.

After Tesla got more than a quarter-million orders in the first three days, CEO Elon Musk had said even that number was at least twice what he had expected.

Musk revealed the Model 3 on March 31 at an event at Tesla’s design studio in Hawthorne, Calif. The rush of $1,000 reservations has buoyed Tesla shares while raising questions about how the company, which delivered just 50,658 vehicles in 2015, can crank up manufacturing at its Fremont, Calif. factory to produce cars in much higher volumes. The company has said it’s increasing production plans for the Model 3, without giving details.

“Tesla has always talked about making half a million cars by 2020,” said Alan Baum, an auto analyst at Baum & Associates in West Bloomfield, Michigan. “They can do this? Yes. Can they do this today? Probably not. Is it going to be more difficult because expectations are running so high? Yes. But they understand that, and they’ve learned from significant missteps with the launch of the Model X.”

The crush of orders means Tesla has now taken in more cash from the Model 3 than its June 2010 IPO, which raised $226.1 million. The number of orders doesn’t equate to number of customers, because some people reserved more than one Model 3, and Tesla and SpaceX employees also got priority. Musk said on Twitter over the weekend that the average sale price, with options, probably will be closer to $42,000.

Customer deposits are fully refundable up to when the vehicle is put into production. The cash lets the Palo Alto, Calif.-based automaker fund research and development projects, construction of its Nevada battery factory and an expansion of retail stores, service centers and the Supercharger network. Tesla held $283.4 million in customer deposits at the end of 2015, according to its recent annual report.

Accounting Treatment

“Model 3 reservations are treated the same way as Model S and Model X reservations were previously treated,” Tesla said. “They are accounted for on our balance sheet and can clearly be seen in our financial filings. They do not qualify as revenue.”

The Model 3 has a base price of $35,000 before a federal tax credit or state incentives. The $7,500 federal credit begins to phase out for a manufacturer’s vehicles when at least 200,000 are sold in the U.S. Tesla has said that when production begins, Model 3 deliveries will begin on the West Coast and move East before starting in markets outside the U.S.

“It is not possible to ship to all regions simultaneously because regulators in each part of the world have slightly different production requirements,” Tesla said in a March 21 blog post. “Staggering deliveries in this way also allows us to provide the best possible customer experience.”

Tesla said Monday that it delivered 14,820 Model S cars and Model X sport utility vehicles in the first quarter. The company reaffirmed plans to deliver 80,000 to 90,000 vehicles this year.

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