Tesla (NASDAQ: TSLA) is about to make one of the most notable changes to its Model S and X lineup in years. The company is going to stop selling the lowest-cost versions of its Model S and X vehicles beginning Monday. While the change may seem minimal on the surface, it means the starting prices for both vehicles will now be significantly higher.
Sure, there's a chance that Tesla is just trying to reduce overlap between its higher-end Model 3 cars and its lowest-end Model S and X vehicles. But there might a different and more interesting reason for the change: New Model S and X variants could be launching soon.
Tesla Models S and X. Image source: Author.
Far more expensive
"Starting on Monday, Tesla will no longer be taking orders for the 75 kWh version of the Model S & X," Musk said on Twitter Wednesday. "If you'd like that version, please order by Sunday night."
The versions of the Model S and Model X with 75 kWh batteries may not be able to drive as far on a single charge as their 100 kWh counterparts, but they are also much cheaper. The 100 kWh version of the Model S starts at $94,000 -- $18,000 more than the 75 kWh version of the sedan. The 100 kWh variant of the Model X starts at $97,000, or $15,000 more than the 75 kWh model.
Driving Range on a Single Charge
75 kWh Model S
100 kWh Model S
75 kWh Model X
100 kWh Model X
Data source: Tesla.
Eliminating the 75 kWh versions of these models, therefore, may make it difficult for Tesla to sustain the two vehicles' current sales levels -- unless, of course, Tesla has some upcoming changes to the lineup that will help solicit demand.
Product changes on the way?
There are several reasons Tesla might announce new Model S and Model X variants. First, in Tesla's 2017 fourth-quarter shareholder letter, the company said it planned to optimize its options mix on the two vehicles to maximize their gross margin. Tesla may have put off these changes in 2018 as it focused on its Model 3 production ramp . Second, the Model S and Model X still use Tesla's older 18650 battery cell form factor, despite management's admission that its newer 2170 cells, used in the Model 3, have higher energy density. Perhaps the electric-car maker is finally ready to bring its latest battery technology to the Model S and Model X.
While eliminating lower-cost versions of the two vehicles could help their gross margin, demand would have to remain at current levels -- about 100,000 units per year for Models S and X combined. And without any follow-up enhancements or changes to current Model S or Model X cars -- even something as simple as improved range or lower prices for 100 kWh versions -- demand for the two vehicles could suffer after the 75 kWh Model S and Model X are no longer available.
While we can't be certain, new Model S and Model X variants -- or at least more price cuts -- are likely on the horizon.
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