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Why The Model 3 Is Such A Big Deal To Tesla

March 30, 2016, 2:20 PM UTC

Over a decade ago, Tesla CEO Elon Musk had a vision to create an electric car for the masses, but the technology just wasn’t good enough or cheap enough yet. In the early days that car had a code name: Bluestar.

Tesla will finally unveil that dream car, now called the Model 3, at a buzz-filled event Thursday night in Hawthorne, Calif. Musk’s vision is finally becoming a reality.

Tesla’s Model 3 is the next step in the company’s evolution, from high-end luxury electric car maker, to a manufacturer of an affordable product for mainstream car owners. The move is both a major risk for Tesla, which isn’t yet profitable, and also a massive opportunity for the company to continue to disrupt the auto industry.

Expect the usual fanfare of Tesla events on Thursday: an open bar, a legion of Tesla-obsessed customers in the audience, and brief remarks by Musk including inside jokes only his engineers will really understand. Oh, and Tesla says attendees will get a chance to ride in a working Model 3.

The company has prohibited professional cameras and videos from the event, and will only allow photos from cell phone cameras. Instead, Tesla says it will provide all the stock imagery. To me that doesn’t exactly install confidence in what the Model 3 prototype will look like close up. Tesla didn’t explain the decision.

BEIJING, CHINA - OCTOBER 23: (CHINA OUT) The v7.0 system includes Autosteer, a new Autopilot feature. While it's not absolutely self-driving and the driver still need to hold the steering wheel and be mindful of road conditions and surrounding traffic when using Autosteer. When set to the new Autosteer mode, graphics on the driver's display will show the path the Model S is following, post the current speed limit and indicate if a car is in front of the Tesla. (Photo by ChinaFotoPress)***_***
Elon Musk, Chairman and CEO of Tesla Motors, at a press conference last year in Beijing. Photograph by China FotoPress cns via Getty Images
Photograph by ChinaFotoPress cns via Getty Images

But we’ll see shortly—as soon as Tesla’s livestream and media live blogs (like ours) start—what Tesla fans, would-be buyers, and critics really think of the Model 3’s design, specs, and value. The car is both a big gamble and a very big deal for Tesla’s future.

Like it tends to do with all its major decisions, Tesla is betting its future on the Model 3. It had a successful run with its second car, the Model S electric sedan, and followed that up with an electric SUV, the Model X, which is loosely based on the basic design of the Model S.

For more on Tesla’s lithium strategy read: A Lithium Gamble That Could Win Big for Tesla

But those cars, with added bells and whistles, commonly sell for over $100,000 each. That’s a little over three times what the Model 3 is supposed to cost ($35,000) when it finally ships in late 2017 (translation: you won’t likely get yours until 2018 and 2019).

The Model 3 represents a major step in Tesla’s evolution as a car company. While Tesla has shipped about 100,000 electric cars to date, the company plans to boost that number dramatically over the next four to five years with help from the mainstream Model 3.

To create a car that it can sell so cheaply, Tesla has had to make some big, risky decisions.

The Tesla Gigafactory is shown under construction outside Reno, Nevada
Construction of the Tesla Gigafactory outside Reno in February 2015. Photograph by James Glover — Reuters
Photograph by James Glover — Reuters

The company is building a massive multi-billion-dollar factory outside of Reno, Nev., that will mass produce batteries to help make them and the cars they power cheaper. Musk has said that Tesla couldn’t make the Model 3 without the battery factory, and Tesla wants to churn out enough batteries at the facility to make 500,000 electric cars annually.

The company wants to reduce the costs of its batteries by 30% using various techniques like large scale manufacturing, innovative supply chain sourcing, and new chemistry. In general, lithium-ion batteries have been falling in cost over the years as Asian giants like Tesla-supplier Panasonic have been investing heavily in increasing supply.



Betting on a drop in lithium-ion battery costs has been a critical part of Tesla’s business model since the company was formed in 2003. Adding in the Gigafactory just helped to accelerate that decline.

Will it be enough to enable Tesla to make the $35,000 car with a 200 mile range? Likely yes. Years ago, Musk was actually hoping that Tesla’s mainstream car could be priced as low as $20,000 or even $30,000. $35,000 now appears to be a more conservative estimate for the car.

Tesla Introduces Self-Driving Features With Software Upgrade
A member of the media test drives a Tesla Model S car equipped with autopilot in Palo Alto, Calif. Photograph by Paul Morris—Bloomberg via Getty Images
Photograph by Paul Morris—Bloomberg via Getty Images

So what can we expect from the Model 3? Analysts have speculated that the body will be made of steel, instead of aluminum, which would lower costs, would be easier to manufacture, but is a heavier metal. The basic autopilot features that Tesla showed off last year are also supposed to be included in the Model 3 from the start.

A couple years ago, Tesla’s chief designer, Fran von Holzhausen, told me that the Model 3 could be more expressive and almost couture in its style, than the almost staid Model S sedan that he designed. However, analysts are now speculating that the Model 3 could look and operate like a toned-down cheaper version of the Model S. If that were true, Tesla would then also try to differentiate the Model S from the Model 3 by giving the premium car even more added goodies.

For more on Tesla autopilot watch our video. [fortune-brightcove videoid=4559773718001]

Even if Tesla fans don’t love what they see at the premiere on Thursday, they will likely bombard the company with reservations for the car. Tesla and SpaceX employees can already reserve their Model 3s while the general public can start submitting them on Thursday morning at Tesla stores. Anyone on the Internet can reserve online starting at 8:30 PM pacific time on Thursday night.

Model 3 reservations cost $1,000. Expect to see lines overnight at Tesla stores throughout California, and maybe even the world, on the night of March 30, so that die-hard fans can get earlier on the wait list. Many Tesla-lovers will probably be willing to put down a deposit sight unseen.

Toning down a car, and fitting it under $35,000, will be a new experience for Tesla. So far, Tesla has focused on one upsmanship its cars with wow-inducing features like the swooping doors of the Model X and the 17-inch dashboard screen of its cars. In hindsight, though, some of these over-engineered features have caused Tesla delays and frustration.

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But for all the risks that Tesla is taking with the Model 3, the company is usually pretty good at adjusting early products to make its customers happy. If it doesn’t get it quite right, the company has consistently worked hard at using adjustments, refinements, and software updates to get closer to what it’s customers want.

Still, the unveiling of the Model 3 is a very big deal for Tesla. It’s one of the final steps in Musk’s plan to build a business out of expensive luxury (and cool) electric cars and use it to eventually build a mass market product. Musk gets handsomely rewarded when he hits milestones like ‘deliver Model 3 prototype’ and eventually ‘ship final Model 3 production car.’

If the Model 3 somehow falters badly, it could send a big scare to Tesla investors. Earlier this year, Tesla’s shares dropped substantially, partly over slow production of its Model X car, but the company has always benefited from enthusiastic shareholders. If the company gets its first mainstream push wrong, that could spook even the most bullish Tesla’s Wall Street analysts.

To get the first glimpse of what the Model 3 actually looks like, come back to on Thursday night and see what the world’s most interesting electric car company has in store.