While everyone has been distracted by the Shakespearean drama that is Tesla under Elon Musk, something's been happening under the radar: The automaker is quietly gaining an ever-larger share of the U.S. luxury car market, according to new research by the automotive site Edmunds. 

Just how much of a share? Statistics about Tesla are always a little iffy since the famously closed-mouthed automaker doesn't share its sales numbers or break its delivery numbers down by nation or region. But Edmunds analyzed things like registration records and estimated that Tesla sold 64,727 luxury cars in the third quarter of this year. That's just a couple of thousand less than Mercedes-Benz, and more than Cadillac and Lincoln combined. (Would you have believed a decade ago that an electric car could outsell Caddy and Lincoln combined? I wouldn't.)

Edmunds' analysis indicates that Tesla has been gaining on its gas-powered competitors over time. And it's worth noting that, at least where the Model 3 is concerned, what's limited Tesla sales has been supply not demand--there's still a waiting list of people who want the car but can't yet get one. With Model 3 production having reached its goal of 5,000 a week back in June, and at least near that level since, Tesla stands to grab even more of the luxury car market share.

Embedded in these stats is a fact that might not please Elon Musk: With a starting price of $49,000 the Tesla Model 3--while much more affordable than the company's six-figure models--still counts as a luxury car. In fact, it likely has a higher average price than other luxury cars, according to Edmunds analyst Jeremy Acevedo. Since Teslas are sold in company-owned stores rather than traditional dealerships, Edmunds can't calculate what the average sales price actually is, although Tesla is known for not offering discounts

"DOMINATED by Tesla"

Still, this is all very good news for Tesla's bottom line. Even before the surprise earnings report this week showing that the company turned a profit last quarter, short-selling information site Citron Research reversed its position on Tesla, and Tesla's dominance of both the luxury car market and the electric car market is what changed the company's mind. "While the media has been focused on Elon Musk's eccentric, outlandish and at times offensive behavior, it has failed to notice the legitimate disruption of the auto industry that is currently being DOMINATED by Tesla," the company explained in its report reversing its position. 

Citron goes on to share a few charts that show just how powerful Tesla's market position is. In addition to its growing strength in the luxury car market overall, Citron notes that the Model S is by far the best selling large luxury car. As of this past quarter, Tesla is also crushing its competition in the electric car market. Now that Model 3 production is up to speed, Citron's charts estimate that it sold 54,550 Model 3s, 8,000 Model S vehicles and 7,000 Model X vehicles in the third quarter. (That total is a bit higher than Edmunds' but again these are all estimates.) If these charts are correct, the Nissan Leaf, once the best selling electric car in the world, was outsold by the Model 3 in the third quarter by a factor of more than 10 to 1.

The next challenge for Musk and Tesla is to finally offer a car that doesn't price itself into the luxury category, a challenge that was supposed to be met with the Model 3. Faced with the need to increase production and achieve profitability, the company chose to focus first on the more expensive version of that model, and that decision seems to have paid off. 

But now Tesla and its customers can become victims of its success. After a car maker sells 200,000 electric cars, the $7,500 tax credit for buying one starts to disappear. Tesla recently confirmed that it had sold more than 200,000 cars, which means the incentive for Teslas is set to phase out next year, getting cut in half to $3,750 on January 1, and halved again to $1,875 on July 1. At the end of 2019, it vanishes altogether. 

Meanwhile, Musk has said that Tesla will start producing the $35,000 Model 3 late this year with mass production beginning next year. But skeptics predict that production won't start at all until sometime next year, and of course Musk is famous for setting difficult deadlines for his company, and then missing them. Whenever it does arrive, the $35,000 Model 3 will likely be met with enthusiasm, as mid-market car buyers finally get their chance at a Tesla.

Published on: Oct 26, 2018
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