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Tesla’s Model 3 Marks the Coming of Age of Electric Cars

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There's a good reason most people regard electric cars as
an indulgence of the rich: they're expensive. Yet research
shows that most car owners would prefer electric cars to
those powered by internal combustion engines (ICS), if
electric cars were competitively priced and able to travel
at least as far on a single charge. That has been an
elusive dream for over a century, and although the dream's
realization has grown closer in recent years, electric cars
still fall short on many fronts. In March 2016, however,
the game changed when Tesla announced its $35,000 Model 3.
If initial enthusiasm is an indication, the Model 3 may
well be the first electric car to fulfill the dream and a cheaper way to get the car of your dreams.

To stimulate interest and generate sales, car companies
launch new models with vast and expensive advertising
campaigns. Tesla skipped this strategy and merely announced
the new model's imminent arrival. It appears to have
worked, because huge numbers of potential customers
immediately placed pre-order deposits without even having
seen the car. According to the Financial Times, within
hours of the Tesla motor company announcing the Model 3,
276,000 eager punters paid the $1,000 refundable booking
deposit despite the first cars not being scheduled for
delivery until the end of 2017.

The Tesla launch was more like the launch of a new Apple
iPhone than the launch of a car. Aspiring owners queued
overnight outside Tesla's premises, reasoning that, if they
were among the first to pay the deposit, they would be
among the first to take delivery.

Tesla vehicles are perceived as cool items from a company
that, like Apple, broke away from the old ways of doing
things. Indeed, it could be argued that Tesla is a computer
company that decided to make cars Computers play a huge
role in the new Tesla, controlling battery performance,
motor management, navigation, fault diagnosis, climate
control, entertainment systems, and instrumentation. In
addition, Tesla Motors is run by Elon Musk, a visionary CEO
with a track record in cutting-edge business ventures, many
related to IT. His ”coolness” credentials could hardly
resonate more favorably with the iPhone generation. He is a
founder of PayPal and CEO of Space Exploration Technologies
(SpaceX), the first private company to launch a spacecraft
that docked with the international space station (ISS).

Tesla is, of course, different from Apple in many ways. For
one thing, the Model 3 costs about 60 times as much as an
iPhone. Yet many people who consider a car as important
and as indispensable as a smart phone figure they may as
well queue for the coolest one.

Tesla's future is not without uncertainties. The company's
cachet may help it fend off competition from the polluting,
gas-burning ICE cars produced by legacy motor
manufacturers. Yet that tailwind may disappear quickly if
the new Tesla does not live up to expectations. Production
delays due to the unexpectedly high demand are likely to be
Tesla's biggest immediate problem. Musk claims the company
will be able to produce about 500,000 units per annum. In
addition, it is building its own battery plant (called the
Gigafactory) in Reno, Nevada. That plant will begin
producing cells in 2017 and reach full capacity in 2020.
Indeed, that timescale may suit Tesla, since gas prices are
currently at an historic low; environmental considerations
aside, running cars with ICEs is more economical for the
time being.

Although less than 1 percent of private cars currently sold
in the US are electric, that scenario is changing. With
battery and motor technology constantly improving, and
prices falling, electric cars are becoming more attractive
every day. The low price of fuel may delay the switch from
petrol-driven cars to electric, but few experts expect that
competitive advantage to last indefinitely. With new
technology, change usually happens quickly; the first
iPhone was launched in 2007 and quickly undermined many of
the existing market leaders. It may take a few more years,
but there is little doubt that the future of cars is electric.

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