Big Question Looms Over Tesla ‘Highland’ Model 3 Refresh: Price

As Tesla readies the next generation of the Model 3, one of the burning questions is price.

Though you might not get that impression on social media, where it’s about everything but price. Twitter, for example, is flooded with tweets from Tesla diehards obsessing over rumored Model 3 “Highland” tweaks* such as new headlights, turning signal stalks (or lack thereof), and Hardware 4.0 self-driving tech.

But price is a theme CEO Elon Musk returns to frequently because he knows it’s crucial to millions of potential future buyers who can’t necessarily afford a $40,000-plus car.

Back in 2020, Musk said: “We’re confident we can make a very compelling $25,000 electric vehicle that’s also fully autonomous.”

And he addressed price in the recent July earnings conference call.

“As interest rates rise, the affordability of anything bought with that decreases…So, when interest rates rise dramatically, we actually have to reduce the price of the car,” he said.

Tesla in fact took some action on this front last month by offering 84-month loans, which lowers monthly payments. And new 2023 Model 3s have been dropping in price. Rear-wheel drive Model 3s in inventory in California are now offered at prices** as low as $37,420.

A Model 3 — or ‘Model 2’ — with a modest price

But there is still hope that Tesla will go further. That is, bring out a new model that is priced lower out of the gate.

Some speculation on Twitter suggests this could happen, citing lower component costs. “The most exciting part is that based on the new [Highland] project’s component costs, the price of the new car is expected to be around 200,000 RMB,” wrote teslashangai. That converts to roughly US$28,000.

Musk has also laid the groundwork. He talked about lower material and component costs, including a next-generation lower-cost drive unit (which uses a permanent magnet motor and no rare earth materials) and lower battery cell costs, among other things at the annual shareholder meeting in May.

At that meeting the Tesla CEO also signaled that two new products will be high-volume, suggesting a relatively low price (see image at bottom).

— “If I were to guess…we will probably make…in excess of five million units a year of these two models combined.” —

For reference, Tesla made just shy of 1.3 million Model 3/Y in 2022.

Ivan Drury, Edmunds’ director of insights, said that making a $25K car that satisfies a large pool of buyers is a challenge.

“If one materializes…and customers aren’t left feeling like they’ve compromised on all other aspects of rideability–including adequate range–that would be a minor miracle,” Drury told me in an email back in May.

“Everyone wants lower transaction prices, but the current offerings throughout the industry have made it clear the masses aren’t willing to compromise on content, interior space and body style,” Drury said.

But Tesla has pulled off miracles before. Needless to say, a truly low-cost Tesla without a lot of compromises would be a watershed product and likely reset the EV market.

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NOTES:

*Other rumors suggest a redesign that evokes the best elements of the Model S.

**Throw in the $7,500 federal tax credit and the price drops below $30,000. And potentially much lower if you include state rebates — $2,000 is typical in California but can be as much as $7,500 (matching the federal tax credit), dropping the price to the low $20K range. These hefty incentives may have Musk rethinking the necessity of a lower-priced Tesla.