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Tesla’s Model 3 is a high-stakes car for the high-end automaker

Amanda Wuest is used to waiting for her dream car to come along.

Her love for Tesla Motors Inc. TSLA, -1.31% cars started in 2008 with the Roadster, the electric-car maker’s first-ever vehicle. Unfortunately, it cost more than $100,000, too rich for her budget. When the Model S sedan came along four years later, it, too, was out of her price range.

Then she heard about the Model 3, the car Tesla hopes to sell for half the price of a Model S — or about $35,000 — and became so enthralled that she launched a website to share news about it.

Now Wuest, a Philadelphia-area IT administrator, hopes to be one of the first people to plunk down $1,000 for a car before she even sees it on a lot.

“My parents think I’m crazy to put a deposit on a car I won’t be able to test drive,” said Wuest, 36. “Tesla is the only maker that really excites me.”

The Model 3 sedan, which Tesla is expected to unveil — in some fashion — later this month and is expected to hit streets in late 2017, is the cornerstone of the company’s quest to become a mass-market American car manufacturer. How the marketplace responds to the car, experts say, could determine the company’s future.

“The Model 3 is critical to Tesla’s ability to transition to niche to a higher-volume car maker,” said Stifel analyst Jamie Albertine.

Tesla’s ability to deliver is closely watched

Elon Musk, Tesla’s CEO, has said the company will begin taking reservations for the Model 3 on March 31 in stores and April 1 online. Tesla, somewhat uncharacteristically, has otherwise played it close to the vest with the Model 3, offering few specifics beyond those dates and a late-2017 timeline for production and delivery.

A company spokeswoman, asked for more information about the Model 3, pointed only to Musk’s previous public statements; Tesla has said the car will go 200 miles between charges and cost around $35,000 before tax incentives. Some analysts believe he might only present drawings of a Model 3 this month.

A mass-market car was always part of Tesla’s game plan, with the company setting off to make luxury electric cars as precursor to a cheaper version. On a recent conference call with analysts, Musk even thanked Model S and Model X customers for helping pay for the Model 3’s development.

“That’s where we put all of the revenue we received from the Model S and Model X,” he said.

Getty Images

Musk is also confident in demand, saying Tesla’s market share in premium sedans has grown as other car makers have struggled. “If the Model 3 is at all similar in its market segment, it doesn’t seem like we’re going to be demand-constrained,” he said.

Tesla has demonstrated that there is demand for electric vehicles that traditional manufacturers overlooked, said Albertine. Now that it has invested in becoming a higher-volume manufacturer, he said, the stakes are raised for the Model 3.

As the company has expanded its brand into middle America, its efforts have raised questions about its ability to produce cars in greater numbers. Tesla ran into delays with the Model X, the SUV the company launched last year but had promised for 2014, blaming some of the hang-ups on suppliers.

The uncertainty surrounding the Model 3 and a slow production ramp-up for the Model X are part of what has dragged the stock down recently. Shares are off more than 20% so far this year, much more than the losses of less than 4% for the S&P 500 index SPX, -1.12% Tesla’s losses over the past 12 months are roughly comparable to the index’s.

Tesla, Shutterstock

And the Model 3 has a head-to-head rival in terms of price and battery range, among the biggest selling points for the Model 3. General Motors Co.’sGM, -2.88% Chevrolet Bolt, expected this year, will also cover 200 miles per charge and cost about $37,500.

Some electric-car buyers may just go for the Bolt rather than wait 18 months for their Model 3, which won’t be unique when it’s finally available, Kelley Blue Book analyst Karl Bauer said.

Still, the Model 3 has the potential to move Tesla closer to its goal of becoming profitable this year and making 500,000 cars by the end of the decade, according to Bauer. If Tesla gets timing, production and volumes right, said Bauer, it could become “a powerful revenue tool for the company.”

Also protecting Tesla, according to Bauer: The Tesla appeal, which has translated into a valuable brand customers like. “In spite of everything, [Musk] got a brand — a brand that many people find desirable” and preferable to its competitors.

For some Tesla fans, waiting means a kind of excitement

The strength of Tesla’s appeal is evident in cases like Wuest and Dan Ahlgren, a 34-year-old U.S. Army officer in Clarksville, Tenn., who also plans to put down the $1,000 deposit for the Model 3. He test-drove a fully loaded Model S, with a $140,000 price tag, in February.

Ahlgren is confident that Tesla will be able to put out a good car, likes that it only make electric vehicles, and believes it has ironed out its past production and delivery issues over its more than 10 years as a company. If Tesla doesn’t get the Model 3 exactly right at first, he said, they’ll fix it. “It’s not a great risk,” he said.

Even potential delays don’t bother him, since he sees them as a chance to save a bit more before starting to make payments. “It’s kind of an odd layaway,” he said.

Ahlgren does not expect his future Model 3 to have as many amenities as the Model S he drove, but he anticipates Tesla’s autopilot and over-the-air software updates — though little is known about the features the Model 3 will have.

A former auto mechanic who still works on his and his wife’s cars — a Toyota pickup nearly 20 years old and a 2004 Acura TSX, both paid off — Ahlgren said he expects the Model 3 to be less expensive to own than a gas-powered vehicle.

“I expect to save on gas and on maintenance,” he said. “I’m also likely to own the car longer, especially if the technology keeps getting upgraded, unlike a regular car.”

With delivery for the Model 3 not schedule until next year, even the most avid fans of the company and its cars must wait. Still, for devoted Tesla aficionados even the opportunity to place down a deposit can feel like an event. Wuest is already excited about heading to the Tesla store in Devon, Pa., to write Musk a check.

“I already took the day off,” she said. “I’m going to be there.”

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