Will Tesla fans mob the Model Y, or have they been repelled by the chaos?

Samantha Masunaga, Los Angeles Times on

Published in Business News

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 percent 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."

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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 percent more than the Model 3 sedan because the crossover is "about 10 percent bigger" and has "slightly less range for same battery." The Model Y will be built on the Model 3 platform.


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