Tesla Model 3 Is Company's Biggest Test Yet

Tesla Motors built its reputation making sporty, sexy and very expensive electric cars.

It's staking its future on something more affordable.

Tesla plans to unveil its Model 3 electric car Thursday night at its Los Angeles design studio. At a starting price of $35,000 (roughly Rs. 23,00,000) - before federal and state government incentives - the Model 3 is less than half the cost of Tesla's previous models. The car is expected to have a range of at least 200 miles when fully charged, about double what drivers get from competitors in its price range, such as the Nissan Leaf and BMW i3.

The Model 3 is the most serious test yet of 13-year-old Tesla's ability to go from a niche player to a full-fledged automaker. It could be the car that finally makes electrics mainstream - or customers could be scared off by Tesla's limited number of stores and service centers. Either way, the Model 3 is already changing the industry, spurring competitors to speed development of electric cars and improve their battery range.

"The Model 3 is going to be a pivotal model for Tesla," said Patrick Min, a senior analyst with the car buying site TrueCar.com.

Tesla didn't release details about the car before the event. Potential buyers could start putting down $1,000 (roughly Rs. 66,000) deposits Thursday for the Model 3. It's scheduled to go on sale at the end of next year.

Right now, Tesla sells two vehicles: The Model S sedan, which starts at $71,000 (roughly Rs. 47,00,000), and the Model X SUV, which starts around $80,000 (roughly Rs. 53,00,000). But a lower-priced car has been a longtime goal of Tesla CEO Elon Musk. In a 2006 blog post, Musk said Tesla planned to build "a wide range of models, including affordably priced family cars" in order to speed the world toward a solar-powered future.

The Model 3 puts Tesla within reach of millions more customers. Last year, only 2.1 percent of new cars purchased in the U.S. cost $75,000 or more, but 35 percent - or 5.5 million - cost $35,000 or more, according to TrueCar. The Model 3 is a critical part of the money-losing automaker's plan to increase sales from around 85,000 this year to 500,000 by 2020.

But Tesla faces several hurdles. US buyers remain skeptical of electric cars, and low gas prices haven't helped already anemic sales. Sales of new electric vehicles grew 6 percent in the US last year, but they still remain less than 1 percent of the overall vehicle market, according to IHS Automotive. Tesla also faces growing competition from big, deep-pocketed rivals like General Motors Co.

Here's what we know about the Model 3:

When will it go on sale? Tesla has said it expects to start Model 3 production at its Fremont, California, factory at the end of 2017. But the company has a history of delays. The Model X, which went on sale last fall, was initially due to go on sale in early 2014. Musk said last month that the Model 3, unlike the Model X, is designed for "ease of manufacturing." Still, some analysts are doubtful. Morgan Stanley auto analyst Adam Jonas thinks Tesla won't start building the Model 3 until the end of 2018.

Who are its competitors? General Motors is set to start selling the Chevrolet Bolt electric car at the end of this year, a full year before the Model 3. The Bolt will have a similar price tag and a 200-mile range. Hyundai's Ioniq, which has a 110-mile electric range and could match Tesla on price, goes on sale this fall. Audi will follow with an electric SUV in 2018. Musk said last month he's not worried. He thinks the Model 3 will compete most directly with small luxury cars like the Audi A4 and the BMW 3 Series.

How did Tesla make the Model 3 less expensive? Cheaper batteries. Tesla previously assembled its battery packs with battery cells made in Japan by Panasonic Corp. But Tesla and Panasonic are building a massive, $5 billion factory in Nevada which will supply batteries for the Model 3. Tesla says the scale of the factory will lower the cost of its battery packs by 30 percent.