Three years ago, Tesla Inc. Chief Executive Elon Musk unveiled to much fanfare the long-awaited Model 3 sedan, the vehicle that was supposed to turn the luxury electric-car maker into a mass-market contender.
Then came “production hell,” followed by “delivery logistics hell.” The Palo Alto company ended 2018 with total sales of about 145,000 Model 3s, making it the bestselling luxury sedan in the U.S. But in recent weeks Tesla has been roiled by layoff announcements and other moves intended to pare costs. It announced it would close many of its stores and deliver the long-awaited $35,000 version of the car — but less than two weeks later partly reversed the closings and pushed up prices by about 3% on all other vehicles.
On Thursday, Tesla is scheduled to unveil its latest offering, a crossover sport utility vehicle version of the Model 3 sedan called the Model Y. Soon after, the company and its backers will find out whether the chaos surrounding Tesla and Musk has diminished the enthusiasm of its cult-like following.
In the past, new-product launches generated near euphoria among Tesla owners, and a flood of cash in the form of deposits to lock in orders. In two months after the Model 3 was unveiled, for instance, Tesla reaped 375,000 deposits of $1,000, or $375 million.
The company could really use another cash infusion. (It hasn’t said whether it will take deposits on the Model Y.) Musk has said Tesla won’t be profitable for the first quarter of 2019. But analysts say the Model Y may get a different reception.
“I don’t think their brand is in the same place as when they announced the Model 3 in 2016,” said Jessica Caldwell, senior analyst at Edmunds. “Not having a smooth production, having to lay off people, having to close stores, those are real problems. I think people see them with a more realistic lens today in 2019 than they did in 2016.”
Over the last year, Musk has battled with the U.S. Securities and Exchange Commission, starting with his tweet in August that he was “considering taking Tesla private” at a price of $420 a share and that he had “funding secured.”
He later settled fraud charges with the SEC, but two weeks ago, the agency said Musk should be held in contempt for an unauthorized tweet about the company’s production rate. Musk’s legal team has argued that the contempt request was an example of “unprecedented overreach.”
The Model Y is important for Tesla’s popular appeal. The SUV market in the U.S. and around the world has increased dramatically in the last five years — especially the market for smaller crossovers — and tapping into that is crucial for today’s automakers, said Karl Brauer, executive publisher at Kelley Blue Book.
Already, Tesla offers the full-size Model X electric SUV, which has gull-wing doors and starts at $88,000. Although the company hasn’t yet announced the price of the Model Y, Musk tweeted this month that it would cost about 10% more than the Model 3 sedan because the crossover is “about 10% bigger” and has “slightly less range for same battery.” The Model Y will be built on the Model 3 platform.
“You really can’t be a successful automaker in today’s world if you don’t have multiple SUV models to offer,” Brauer said. “For that reason alone, it’s incredibly important for the Model Y to be launched, launched sooner than later and launched without any issues or problems.”
Tesla’s production challenges early on with the Model 3 are well documented. The company grappled with automation issues on the Model 3 assembly line, and in an interview last year on “CBS This Morning,” Musk said the company “put too much technology into the Model 3 all at once.”
By June, Tesla had erected a tent to house another general assembly line for Model 3 vehicles. The plan, though much derided, worked, and the company has come close to hitting its production goal of assembling 5,000 cars a week.
Some analysts say that bodes well for producing the Model Y in a more-efficient manner.
“I think that the Model 3 was probably a good learning exercise in terms of production,” Caldwell said.
Analysts said they weren’t concerned about output at the company’s Gigafactory battery plant in Nevada creating a bottleneck for Model Y production.
“It’s a matter of growing battery production with the vehicle offerings,” said David Whiston, U.S. autos analyst at Morningstar. “I’m not too worried about that, provided they can continue to generate their own cash or get access to cash.”
Daniel Ives, managing director of equity research at Wedbush Securities, said in a note to clients Wednesday that he expected Model Y prices to range from the high $30,000s to $50,000, depending on features.
If it approaches $50,000, the Model Y could find itself competing against a higher echelon of vehicles, such as the BMW X4 sports activity coupe, Caldwell said.
“You’re all of a sudden with these very luxury performance brands,” she said. “You really have to bring the content at that point and bring the wow factor.”
Ives said Tesla could see “massive demand” for the Model Y. “Over the next three years we believe Model Y units could approach 15% to 20% of overall units with Model 3 continuing to be the hearts and lungs of the Tesla growth story over the coming years globally,” he wrote.
This week, Tesla said it would increase prices on the Model S sedan, Model X and more expensive variants of the Model 3 after Monday, as a result of the company’s decision to keep more stores open. Tesla said the price of the $35,000 Model 3 would remain unchanged.
Analysts cautioned that buyers who may have been interested in Tesla at a lower price probably already bought a Model 3 and may not need another vehicle so soon.
On Twitter, some Tesla fans expressed excitement about ordering a new Model Y.
In a tweet to Musk and Tesla on Sunday, Twitter user @anthonyrpalma asked how to order a Model Y.
“What's the word on reservations for the Model Y? I've been excited to see/reserve one since you teased it, but I'm picking up friends at the airport at 8PM PT that day and am worried I'll miss the prime reservation window.”
But at least one Model 3 owner was “shocked/dismayed” by the Model 3 price changes.
“In 2 months since I received AWD, TSLA has cut price by $6k,” one user with the handle @divisioncomm tweeted. “Electric cars already depreciate too quickly.”