The Tesla Model Y is Model 3’s main threat

The Tesla Model 3 is facing stronger competition in both Europe and USA. Unlike Europe, where it has lost market share to rivals from other brands and segments, the Model 3’s biggest threat in USA is its sibling the Tesla Model Y. Even if it is still early to determine the effect of this SUV on the sedan’s commercial performance, it is nevertheless expected.

According to the latest sales data*, the Tesla Model 3 has been posting monthly percentage YoY declines since March, when the Model Y registered its first units sold. The drop continued until August, the latest month available.

Big price gap is not helping the Model 3

The usual trend indicates that SUVs always take sales away from their sedan/hatchback counterparts. It mostly happens in the upper segments, where a lot of consumers continue to shift from the traditional segments to SUVs. OEMs make a huge effort to avoid this by increasing the price gap between the models, and using different positioning.

In the case of the Model 3 and Model Y, there is a big price difference. According to the official prices including incentives, a Tesla Model Y Long Range is 7% more expensive than the equivalent version of the Model 3. In the case of the Performance versions, the gap grows to 10%.

A 7%-10% price difference might sound small, but when compared to BMW for instance, it is huge. In the USA, you just have to pay 2% more to get a BMW X3 over its equivalent BMW 3-Series Sedan version. Consequently, Tesla is really charging a lot more to those willing to be part of the SUV trend.

This is quite bad for the Model 3, which despite the price gap in its favor, seems it can’t stop the client shift towards the Model Y. Currently, there is no direct rival to the Model 3 in USA (the Polestar 2 just arrived). The big drops showed between March and August can not be attributed entirely to the Model Y though.

End of the growth cycle

There are also other reasons. The Tesla Model 3 has been available in USA for three years already. This means that the growth rate cools down or even disappears. However, as there are no other cars like the Model 3 in the market, the demand should not be severely affected.

On the other hand, Tesla had production issues due to the pandemic. Its Fremont factory closed for almost two months in the spring, affecting the deliveries and stock. Nevertheless, this was supposed to be partially solved with the start of production of this car at its Shanghai plant early this year.

*Sources in California, FGW database