Tesla’s affordable Model 3 Sedan is coming soon. Is this a BUY SIGNAL?

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Already regarded as a leader in the luxury electric car space, Tesla (TSLA) announced last week that it will be introducing the ‘Model 3’ sedan for preorder from March 31 – at $35,000, it will be aimed towards the more affordable segment of the luxury market. With its ‘Model S’ sedan currently retailing for approximately $75,000, and its ‘Model X’ SUV soon to be retailing in H2 2016 for $80,000, Tesla has positioned itself for success across three segments of the market.

Given BMW, Mercedes and Audi all offer affordable luxury vehicles in the $30,000-$35,000 price range, Tesla won’t be the first to target this segment – furthermore, indirect competitors such as Toyota and Honda are also improving the quality of their cars yet charging less, putting pressure on luxury manufacturers’ margins. And with this segment traditionally comprising younger customers who the auto manufacturers hope to build affiliation with through their lifetime, it’s a very competitive segment – but it’s also one that is lucrative in the long run.

Nearly 50% off its peak share price, can Tesla shares increase in response to the highly awaited Model 3? Chart courtesy of FreeStockCharts.com

Nearly 50% off its peak share price, can Tesla shares increase in response to the highly awaited Model 3? Chart courtesy of FreeStockCharts.com

With the buildup and demand for the ‘Model 3’ expected to be high, should Tesla be able to dominate this segment it could also bode well for its more expensive models in the future. In turn, this could set the way for future growth in the company, and an increase in its share price – which is nearly 50% off its surge above $291 in mid-2014 and mid-2015, instead circling two-year lows around $150. While a limited revenue stream, product delays and the fact it has still not recorded a net profit have been dragging on Tesla’s share price, the company’s almost ‘cult-like’ following suggest it is doing something right and that its results should follow over the coming months.

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Disclosure: Ser Man Traders do not hold any shares in Tesla (TSLA)