Elon Musk is going to unveil the latest Tesla, a mass-market SUV called the Model Y, Thursday night. The announcement can’t come soon enough for the electric car company.
Tesla has long said it needs to have an affordable car to hit its goal of transitioning the world from fossil fuels to renewable energy. If regular people can’t buy its vehicles, there’s no way it can reach that goal — or consistent profitability.
But that affordable car has only just arrived.
Tesla’s Model 3, its first attempt at a mass-market car, was first handed off to owners in the summer of 2017. But Tesla originally couldn’t afford to sell it at the promised price of $35,000, so it instead sold much more expensive souped-up versions of the Model 3. At the upper end, those cost more than twice as much as originally advertised. Its Model 3s with the promised price tag didn’t arrive until last month. Even then, the move required Tesla to close some of its stores, push back its profit forecast for another quarter and lay off employees.
Still, the Model 3 has been wildly popular. It had the impressive distinction of being not only the best-selling electric but also the best-selling luxury car in America last year.
Musk has said the Model Y will cost about 10 percent more than the Model 3, so we’re estimating a base price of $38,500.
These prices are lower than the original Tesla models but still more expensive than typical cars. The average price for a vehicle last year was thousands lower: $32,500, according to JD Power. Note that Tesla’s prices get vastly more expensive with different add-ons, like more powerful electric motors and autonomous driving capabilities.
Another reason Tesla needs the Model Y? In the US, SUVs are king. Tesla needs to sell the cars Americans want if it’s going to be widely popular. Currently, the vast majority of cars sold in the US are SUVs or crossovers.
Nearly 70 percent of passenger vehicles registered in the US in the first month of 2019 were sport utility vehicles, according to data from research firm IHS Markit. A decade ago, that split was close to 50-50.
Tesla already has an SUV, the Model X, but its base price begins at $90,000 — or nearly three times as much as the average vehicle price in the US. The Model Y will be a much more realistic SUV option for typical Americans.
And then there’s the question of money.
Tesla only recently started turning a small profit, bringing in $139 million in revenue of $7 billion of revenue in the final quarter of 2018. But thanks to the Model 3 price cuts, Musk doesn’t expect the company to be profitable this quarter.
The Model Y could help with that.
The vehicle will use about 75 percent of the same parts as the Model 3, so it should help to keep expenses low while garnering a larger — though still relatively affordable — base price.
Teslas — led by the Model 3 — are the best-selling electric vehicles in the US. The automaker’s cars represented more than half of all US electric vehicles last year, according to data from InsideEVs. Musk, in the last earnings calls, said he expects demand for the Model Y to be 50 to 100 percent higher than the Model 3.
Of course, Tesla will need to make sure it reaches its production targets if it’s going to be able to keep up with — and profit from — that demand.