Why Do Car Companies Announce Models Years in Advance?

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Tesla Motors Inc.’s (NASDAQ: TSLA) Elon Musk said his new Model III should be ready for launch in 2017. A great deal could happen in the three years between now and then. He says the car will compete with BMW’s 3 Series, one of the most successful luxury car brands in history. The 3 Series may change a great deal in the next three years too. Maybe it will have an all-electric engine.

The Model III announcement is an extension of a habit car manufacturers have had for years. New cars are touted long before the consumer can see them, let alone own them. One of the best examples, historically, was the General Motors Co. (NYSE: GM) announcement in 2007 that it would launch the Chevy Volt. The prototype was for a car meant to be a pillar of the future of GM. When the Volt went on sale in late 2010, almost no one bought it. GM management would have been better off saying nothing at all. At least they would have avoided a very public humiliation.

The primary venue for the announcement of future generations of cars and light trucks is the world’s largest car shows. Manufacturers show off prototype after prototype. Some end up in production. Some don’t. The fate of the models is a guessing game.

Presumably, car companies believe showing off models before they are available will stimulate consumer interest. Of course, the consumer does not have a memory that is two or three years long. When a prototype goes into production and reaches showrooms, most buyers don’t recall the first time it was shown to the public. With dozens of prototypes and pre-announcements of new models each auto show, the clutter makes the process of remembering even harder.

Musk’s disclosure of his plans for a $35,000 Model III presents a challenge. By the time the car is available, the cost to build electric cars may have fallen. However, regulation of electric cars could have changed. Trouble with the present generation of Tesla models might make the company alter anything from battery configuration to pricing. Musk has forecast the release of a vehicle that will never be released at all.

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