Will Tesla Motors Inc Model X Cannibalize Model S Sales?

Tesla stockBlomst / Pixabay

One expert says Model X will account for about 90% of Tesla’s sales by 2016

Tesla’s forthcoming Model X SUV crossover has been plagued by delays. But repeated delays have failed to deter buyers from placing pre-orders. Model X reservations have crossed 20,000, and still counting. The Palo Alto-based EV maker is expected to start delivering the SUV in the third-quarter this year. Some buyers may not get it until early 2016.

Tesla aims to sell 50,000 units of Model X in the first year

As the Model X release date approaches, a big question before investors is whether the new vehicle will cannibalize Model S sales. Tesla aims to sell at least 50,000 units of Model X in the first full year of launch. Until now, a major reason Model S has been selling well is customers did not have much choice inside a Tesla store. There has not been any major competitor to Model S. It was the first choice of customers keen to get behind the wheels of a beautiful, high-quality, and fast all-electric vehicle.

But that may change with the launch of Model X. The current Model S serves the high-end consumers with deep pockets and a zeal for stylish and sophisticated vehicles. Tesla’s upcoming vehicle will serve the same segment. Morgan Stanley analysts expect Model X to be priced 5-10% higher than Model S, which costs $71,000 for the base model. The crossover was recently spotted in California.

Why Tesla Model X may hurt Model S sales

Model X will be more attractive than Model S. It will have a better interior, a newer design, and the much-hyped falcon wing doors, says Seeking Alpha contributor Anton Wahlman. It will be the cool new thing. With the two vehicles targeting the same customer base, buyers are more likely to go for the newer Model X. American consumers’ love for SUVs will be a big positive for Model X. Americans prefer large crossovers and SUVs, and Model X fits the bill.

What’s more, Model X will likely have a better resale value. More and more Model S cars are entering the used car market at lower prices. This may not seem like a big factor, but if you are buying a premium Tesla vehicle, you’d want the newest model that still has some scarcity value.

Once the Model X is launched and the initial delivery time declines from several months to the usual time frame, demand for Model S is expected to go down. Wahlman says Model X will account for about 90% of Tesla’s sales by 2016.

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About the Author

Vikas Shukla
Vikas Shukla has a strong interest in business, finance, and technology. He writes regularly on these topics. - He can be contacted by email at [email protected] and on Twitter @VikShukla10

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