Sorry, but the Model X isn’t meant to save the world
The launch of Tesla’s latest electric vehicle, the Model X, has elicited reactions from elated, to combative, to confused. Given all of the hype surrounding the company, it can be difficult to put the Model X into context.
But to understand the electric SUV’s place in the world—and its purpose for the company—you really need to look back at Tesla’s evolution. The Model X is just a step in the company’s long trajectory; it’s not the company’s end goal.
Tesla’s (TSLA) long-delayed, and relatively high-priced, Model X has never meant to be Tesla’s answer to a low-cost mainstream electric car. Tesla’s Model X is not supposed to deliver, as this article puts it: crucial progress to “bring green motoring to the masses.”
For Tesla, the Model X is partly a way for the company to make more money off of the current technology that Tesla developed for the Model S luxury sedan. The Model X body is essentially built off of the Model S car, though there ended up being more differences between the two cars than the company originally expected when it first showed off the Model X design in early 2012.
But the similarities are why the Model X is similar in price to the Model S, which starts at about $70,000 for the base model. Wait, what? Reading headlines around the world you’d think the Model X is starting at $130,000.
No, Tesla says the base model of the Model X costs about $75,000, before incentives. The difference in price is because the Model X is a heavier car than its counterpart and more complicated (those swooping doors and plush seats).
The media’s confusion is around the Signature Series of the Model X, which start at $130,000. The Signature Series of cars are the first cars reserved (and delivered) and have the latest high-tech fixings.
That said, it’s very easy to start adding on bells and whistles to that base Model X price. Before you know it, you can start adding tens of thousands of dollars to the price of your SUV.
On a side note, remember between the time when Tesla started delivering the Model S in 2012 and later the Model X in 2015, the company launched a variety of new features that car owners can tack on to the final sale, like a tech package and “Ludicrous Mode“. Tesla customers can buy and spend more today, because the company offers more options.
But back to the purpose of the Model X. Tesla needs the Model X to generate additional revenue for the company, and show that it can deliver multiple types of cars. The Model X can also bring in new types of car owners, like Soccer Moms (yes, wealthy ones) who want a really safe car, three rows of seats, and space to carry stuff like extra bags, bikes and skis.
The Model X is not Tesla’s next step on the road to a lower-priced mainstream electric car. The next step to a low-cost car is, of course, Tesla building the Model 3. Tesla has been shooting for that car to cost about $35,000.
At some point a couple years ago, Musk decided that Tesla wouldn’t be able to sell its Model 3 cheap enough without the massive battery factory it’s building outside of Reno, Nev. The Gigafactory is supposed to make batteries that are a third cheaper than the standard lithium-ion batteries on the market today.
The Model 3 can’t be made until the Gigafactory is operational. It’s likely that the Model 3 could take significantly longer than expected to get to market. Musk’s predictions are generally directionally accurate but temporally challenged.
That’s partly why Tesla needs revenue sources other than the Model S to hold it over until it delivers the Model 3. This year, Tesla also launched a grid battery business for utilities and building owners that want to store energy for use at night or when grid electricity is expensive.
The grid battery business could be a huge help if the Model 3 takes longer than expected to go on sale.
The hurdles for Tesla are many. They include increasing Model X production in time to meet Tesla’s prediction for the number of cars it will ship this year (at the same time as boosting Model S manufacturing), building the Gigafactory on time and on budget, and getting a Model 3 design right.
Right now Tesla is at a specific point in its trajectory with the Model X. Industry watchers should think about the Model X in relation to the company’s evolution and where the company is trying to go. Tesla may or may not get there, but the Model X is not the end goal, nor is it the company’s answer to a mainstream low-cost electric car.
To hear more about if Tesla’s Model X car will take off, watch this Fortune video: