Just a few days ago, Tesla CEO Elon Musk said in a tweet that the company’s next-gen compact SUV Model Y was still “a few years” away. Even though the EV maker is busy scaling up production for Model 3, it seems to have already started working on Model Y. Musk has signaled that Model Y is indeed happening, and we can get to know more about it next week.
Wait until ‘next week’ for the Model Y update
In a Twitter direct message to Ars Technica, Musk asked the publication to wait until “next week.” The company is unlikely to unveil the SUV next week. According to Electrek, Elon Musk is more likely to share details or a picture of Model Y next week. Tesla is expected to show a prototype of the compact SUV sometime soon. The California company plans to unveil the prototypes of its all-electric pickup truck and semi-truck later this year, and Model Y is expected to be unveiled before them.
The launch of the fourth production car in Tesla’s lineup would complete the company’s “S3XY” naming pattern. The next-gen Y will be based on the Model 3 chassis, but it will have Model X-like falcon wing doors. While Model X caters to the premium market, Y is said to cost similar to Model 3’s $37,000. However, the actual cost may go upward of $40,000 because people often add optional features to their cars.
Model Y could become Tesla’s most successful vehicle
It’s not the first time Elon Musk is talking about Model Y. He said during an earnings call last year that it has the potential to sell between 500,000 and one million units a year. In a research note obtained by ValueWalk, Morgan Stanley analyst Adam Jonas said Model Y could become the company’s top-selling vehicle upon release. Morgan Stanley predicts the compact SUV segment would become the most lucrative automobile segment in the world.
According to Autodata, sedan sales have been declining consistently for the past several quarters while crossover and SUV sales are on the rise. Most automakers have already increased the number of SUVs in their product portfolio. Tesla also has its own SUV (Model X), but it caters to the premium market rather than the masses. The upcoming Model Y with its more affordable price tag could significantly boost Tesla’s sales.
At the center of a ride-sharing service
Earlier this month, Autocar claimed Tesla could announce Model Y next year and launch it by 2019. The vehicle is widely expected to feature a supercomputer capable of processing data 40x faster than previously, a new forward-facing radar setup, 12 ultrasonic sensors, and eight cameras. These hardware systems are needed to support fully autonomous driving functionality.
Adam Jonas of Morgan Stanley added that Model Y would be at the “center of an on-demand ride sharing service” because it will be more spacious and have greater luggage space than Model 3. Last year, Elon Musk teased an Uber-like ride-hailing service called Tesla Mobility consisting of self-driving vehicles. These autonomous vehicles would be able to drop you at your intended destination rather than at the nearest bus stop.
Two different studies have shown that Tesla Mobility consisting a large fleet of mass-market autonomous cars could be a viable and highly profitable business. It would be able to grab a large chunk of the ride-hailing market share. Adam Jonas believes Model Y is more suitable for Tesla Mobility than Model 3.
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Tencent picks 5% stake in Tesla
Earlier this week, Tesla disclosed in an SEC filing that the Chinese Internet giant Tencent had purchased 5% stake in the EV maker. Tencent had been buying Tesla shares in the open market following the Elon Musk-led company’s stock offering earlier this month. The Chinese holding company spent nearly $1.8 billion for the entire stake that is now worth more than $2.2 billion.
Elon Musk said in a statement that he was “glad to have Tencent” as an investor and adviser to Tesla. Notably, Tencent has invested in many other electric vehicle companies including NIO, which was formerly known as Next EV. It has also made a strategic investment in Foxconn-backed Chinese EV startup Future Mobility, which has poached employees from Tesla and BMW.
Tencent could help Tesla build a manufacturing facility in the world’s most populous country. The US company is interested in setting up a manufacturing plant in China when demand in the country reaches “critical mass.” Last year, Tesla’s sales in China rose almost 200% to $1 billion. The Chinese government has also relaxed rules, making it easier for foreign companies to make EVs in the country.
Elon Musk sets ambitious production targets
Tesla plans to increase its annual production from 76,000 cars in 2016 to 500,000 in 2018, and then scale it up to one million vehicles by 2020. The company needs to scale up production rapidly to meet the Model 3 demand. Tesla has taken more than 400,000 pre-orders for Model 3. In a call with investors, Elon Musk disclosed last month that the company had placed orders with suppliers for 1,000 Model 3 units a week in July, 2,000 cars per week in August, and 4,000 units per week in September.
That’s just the beginning. Tesla plans to further increase the production to 5,000 vehicles a week by the end of 2017 and 10,000 per week by 2018-end. The EV maker currently makes Model S and Model X at a rate of 2,000 units per week. Tesla will have to churn out 430,000 Model 3 units through the end of 2018 to meet Musk’s targets. Assuming just 50% of them are shipped to the US reservation holders, the US Model 3 sales would easily beat the combined sales of Mercedes C class and BMW 3 Series.
Morgan Stanley analyst Adam Jonas says Model 3 will be ten times safer than an average car on the road, thanks to its advanced software and hardware. Increased safety could further boost sales of the mass-market Model 3. The analyst says it would also change how the auto insurance industry works. According to the National Highway Traffic Safety Administration (NHTSA), the Autopilot system makes Tesla cars 40% safer than over vehicles. Autosteer has reduced crash rates by 40%, found NHTSA.