In the first 72 hours, Tesla received 276,000 pre-orders for the upcoming Model 3. Given Tesla’s limited production capacity, the demand has by far surpassed the supply. Yet not one Tesla customer ever has to worry about paying some ridiculous dealer markup.
Before we go any further, let’s put that deposit number in perspective. The Model 3, with a starting price of $35,000 (before federal tax incentives) is entering one of the most hotly contested sales segments, the compact luxury sedan.
Cars like the BMW 3 Series, Audi A4, and Mercedes C-Class are crucial, high-volume vehicles to get buyers and lessees into the fold at a somewhat reasonable price point. The lease programs especially are designed to keep customers loyal and hopefully get buyers to move up the spectrum to more expensive vehicles as their income increases.
According to GoodCarBadCar.net, the top four best-selling small luxury sedans of 2015 were the 3 Series (94,527 units), C-Class (86,080 units), Acura TLX (47,080 units), and Lexus IS (46,430 units). In only three days, Tesla got more people to plunk down a deposit then the total combined sales of the top four compact sedans in an entire year. Of course, a deposit does not necessarily guarantee a sale, but the amount of interest in the Model 3 is staggering and turned out to be much more than initially predicted.
Usually, when an incredibly high-demand car hits the showrooms and dealers have waiting lists of customers, buyers tend to encounter something on the window sticker known as “ADM-Adjusted Dealer Markup” (you may see other acronyms that do the same thing.) Basically, the dealer tacks on an additional premium of extra profit that relates to what they think they can get for this car. They know some buyers won’t pay, but some will. It’s simple supply and demand economics. Some Porsche dealers are asking $115,000 for an $84,000 Cayman GT4. Ford dealers are tacking on markups to the Shelby GT350 that are almost twice the price of the car!
High-end cars like Porsches are targeted towards folks with a lot of income that probably can afford the premium if they so chose. The Model 3, on the other hand, is aimed at your average new car buyer—someone who most likely has to manage their budget a bit more carefully than your typical 911 GT3 buyer. It is important to Tesla’s success that when a potential customer runs the numbers and determines they can afford a Model 3 at whatever price point they desire, that the car is not snatched out of their reach by a dealership wanting to pad some profits.
Tesla’s direct sales model means that a dealer will never be able to sell a $35,000 Model 3 for $50,000, because out of the 276,000 people that are interested there will be at least a few hundred willing to pay the extra $15,000 to get one in their driveway. That’s not to say that folks willing to pay more aren’t getting preferential treatment. According to Tesla, Model 3 orders will not be first-come, first serve, but rather customers with more expensive configurations will get order priority over less expensive models. (Existing Model S and Model X owners get first crack too.)
But someone who ordered a $35,000 Model 3 can rest easy knowing that despite the popularity, as long as they are willing to wait, the price of that car will not change because some dealer wants to take advantage the market conditions.
People hate the car buying process because no matter how much research they do, at the end of the transaction they often feel like they got taken by the dealer. Whether or not that is reality doesn’t really matter. For many years, the dealers controlled the information, and while the internet has equalized the game in many respects, a lot of car buyers don’t walk away from a car purchase with a good feeling. This is why third party buying tools like TrueCar and haggle-free used car dealers like CarMax are so appealing; they reduce the price anxiety.
Of all the cool features that will be in the upcoming Model 3, the best might be the fact that you don’t have to be rich to buy a car and not feel like you got ripped off.