Tesla Finally Starts Selling $35,000 Model 3

The electric car maker also is shifting all sales online

Tesla Model 3 Tesla

Tesla Thursday started taking orders for a $35,000 version of its Model 3, fulfilling its promise of an affordable electric car. The company said it would make deliveries for some customers within two to four weeks.

The automaker also said it's closing most of its 129 stores and instead will sell cars only online.

Tesla CEO Elon Musk has talked about a $35,000 electric car for years, part of his goal to expand the company's customer base beyond the limited market that can afford cars costing well over $100,000 in some cases. “This is something we’ve been working toward since we created the company,” Musk said Thursday on a call with reporters.

When Tesla unveiled the Model 3 in 2016, the company said it planned to sell a $35,000 version. But the first models were instead priced from $43,000 to $58,000. Buyers still lined up; In 2017, Tesla had more than 500,000 reservations with refundable cash deposits of $1,000 each.

Yet as Tesla struggled to ramp up Model 3 production, some critics wondered whether it could make the production process efficient enough to push the price down. Throughout 2018, Tesla went through stages of what Musk described as "production hell" to boost the number of cars made. By November, the company had sold 100,000 Model 3s.

For $35,000, buyers will get an electric car with 220 miles of range, 0-60 mph acceleration of 5.6 seconds and a top speed of 130 mph. In addition, Tesla is also offering a “Standard Range Plus” model with 240 miles of range, slightly better acceleration, and a 140 mph top speed, starting at $37,000.

Read CR's complete Tesla Model 3 road test.

To get the $35,000 version, buyers must choose black paint for the exterior, 18-inch wheels, and must skip both Autopilot—which includes automated speed and steering control—and what Tesla calls Full Self-Driving capability. (The cars won't be truly self-driving without the need for human drivers to pay attention until the software is perfected and regulators give their approval, Tesla says. That could take years.)

More EVs Coming

Tesla’s cheaper Model 3 will soon face increased competition. The latest crop of electric vehicles will deliver 200-plus-mile ranges on a single charge, and offer popular SUV-like designs. Hyundai and Kia have announced EVs that are expected to start around $35,000 when they go on sale later this year, and Nissan is releasing a longer range version of its Leaf EV, though it hasn't said how much it will cost yet.

All of those models will be eligible for the full $7,500 federal tax credit. Tesla buyers, on the other hand, will only get a partial credit, because federal law phases out the subsidy after a manufacturer sells 200,000 EVs, and the company hit that threshold last year. Any Tesla bought between now and June 30 is eligible for a $3,750 tax credit, and any Tesla bought between July 1 and Dec. 31 of this year will be eligible for a $1,875 tax credit. As of Jan. 1, 2020, new Tesla models will no longer be eligible for any federal tax credit.

Tesla's $35,000 price tag does not include tax credits.

One key thing the Model 3 has going for it is the Tesla brand, said Stephanie Brinley, principal automotive analyst at IHS Markit, a research and analytics firm. Many Tesla buyers swear by their cars even after dealing with issues such as long waits after putting down cash deposits or between when they buy and get their cars. The Model 3 got top marks in Consumer Reports' owner satisfaction survey but reliability issues caused it lose CR's recommendation.

“Like it or not, the Tesla name generates a lot more buzz than Chevy,” Brinley said, referring to the maker of the Bolt EV.

The EV market is expected to grow rapidly in the U.S. over the next few years. IHS Markit estimates that electric vehicles will make up 6 percent of the market in 2025, up from about 1 percent today, driven largely by a global regulatory environment that favors electrification.

Tesla’s decision to focus on only online sales could face some hurdles. While it does sell online now, the automaker opened stores in some states because of laws that require a company to set up dealerships to sell cars there. In the future, customers wanting to buy a vehicle while visiting one of the few remaining stores will be assisted in placing their orders online, Musk said.

Musk said on the call that auto dealers were sure to mount legal challenges but he said he believes Tesla’s direct sales couldn’t be restricted under the U.S. constitution’s protection of interstate commerce.

The stores don't service Teslas so their closures won't affect where owners get their cars repaired. Tesla also operates a network of 79 service centers in 26 states and Musk said the company plans to hire more service technicians.

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Jeff Plungis

I grew up in Detroit's Golden Age, driving a glamorous, vintage ’65 Olds Cutlass in high school and my college years. Later, I experienced the joys and expense of European engineering through a succession of cars made by VW, Volvo, and Saab. That was before the reliable and spacious Honda minivan. Now I'm covering auto safety, new technology, and corporate accountability for CR from Washington, D.C.