The Future Of The Auto Market May Be Upon Us

How large of a player will Tesla become in the United States?

Let’s re-wind all the way back to 2007. To the 79th Academy Awards, specifically. Did you watch? Do you remember any of it? “The Departed one best picture and nothing much interesting happened.

Except that’s not entirely true. At some point in the broadcast, Apple ran an ad for a new product, the iPhone. It’s a good ad, and it introduced the world (or at least the kinds of people who watch the Academy Awards) to a product that would revolutionize social interaction.

Now fast forward nine years, to last week. Tesla Motors, based and manufactured in California, unveiled its latest electric car on March 31, the Model 3. It’s a four-door sedan that the company hopes will reinvigorate its steadily declining stock price and make sustainable transportation mainstream.

As I write this, the auto industry is in a good place. Sales jumped to a record in 2015, besting a mark that had stood since 2001. All told, auto makers sold 17.5 million cars and light trucks in the U.S. in 2015, and Americans spent approximately $570 billion on these vehicles, according to the Wall Street Journal.

In 2015, the bestselling car was the Toyota Camry, which sold more than 360,000 units. The 10th- bestselling car was the Hyundai Sonata, with nearly 174,000 units sold.

The Model 3, which isn’t set to hit the roads until 2017, saw 276,000 people pre-order its new car in just two days. Compare that to the bestselling cars from 2015, or even the single-year performance of some automakers such as Mazda and Lexus which sold 319,000 and 344,000 cars, respectively, last year in the United States.

There are serious roadblocks in front of Tesla, however. The Model 3 isn’t exactly cheap the $35,000 price tag that’s been widely publicized is for a stripped-down model some pre-orders are bound to cancel, and it’s expected that Tesla will struggle to meet demand.

But there are signs that the introduction of the Model 3 will usher in a new era for auto design and the auto buying business altogether.

It’s a watershed moment for rethinking vehicles all together, James McQuivey, an auto analyst at Forrester, tells the Washington Post. Tesla is putting together the idea a vehicle needs to be cutting edge and cool, more like an iPhone than like a Model T. It’s changing what we mean when we buy a car and what it says about us.

Improvements in Tesla’s battery will give the Model 3 a range of 215 miles, which rivals that of the Chevrolet Bolt, a product in direct competition with Tesla and priced similarly. In addition, the number of publicly stationed superchargers which according to the Post can recharge a battery in a matter of minutes rather than hours will double to 7,200 worldwide. Tesla also expects its network of car chargers to grow to roughly 20,000 locations by the same time.

So what does this mean for credit unions?

Well, to extend the iPhone metaphor to its logical conclusion, the Tesla Model 3 has the potential to start a trend. The car becoming more than just a mode of transportation, but an accessory for an individual life. The Model 3 will feature greater range and improved acceleration, compared to previous models, and will include features such as automatic steering, speed, lane changing, and parking.

The car is no longer just a car, as a phone is no longer just a phone.

The Model 3 and future Tesla modelsprovides opportunity for credit unions to finance and service additional auto loans and even the cost of replacement batteries, which can run more than $10,000.

In addition, as electric vehicles, Tesla's have a small if non-existent carbon footprint and are seen as better for the environment than many of the standard gasoline-fueled cars that currently populate the roads. By making electric vehicle loans, credit unions not only position themselves well economically, but morally as well. Becoming a go-to source of electric vehicle loans can positions credit unions favorably with energy conscious individuals, and even generations.

For now, the car cost is high and electricity cost variable. The price of electricity varies more from state to state than the cost of gasoline, but the national rate comes out to about $0.12 per kilowatt/hour (kWh). As more charging stations become available and battery technology improves, it’s possible that the price of a ride becomes even more affordable.

However, questions still remain. According to Inside EVs, Tesla has sold approximately 67,000 vehicles in the United States. That’s important, because the federal tax credit of $7,500 which incentivizes electric vehicle purchases stipulates that manufacturers like Tesla must phase out the credits after selling 200,000 electric vehicles in the United States. Once it hits that number, it’s allowed to offer a reduced credit for one year as it phases those credits out. So how much, if at all, are Model 3’s pre-sale numbers a reflection of people taking advantage of this program, and how many would truly buy a full-price Tesla?

Either way, one thing is for sure: the rest of the auto industry is taking notice.

The Model 3’s huge reservation list should serve as a big wake-up call for the rest of the industry, says Kelley Blue Book analyst Tony Lim to the Post. Tesla just did a lot of heavy lifting to attract attention to the [electric vehicle] segment.

April 7, 2016

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