Tesla Model Y — How Should Tesla Proceed?

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As you may have heard, one of my questions for Tesla CEO Elon Musk on the last Tesla conference call concerned Tesla Model Y. Elon had previously tweeted that they’d unveil the Model Y on March 15. Given how the Model 3 reservations turned out (I’ll get to that in a moment), I was curious if Tesla was planning a significant departure from that with the Model Y. Elon’s response was that they didn’t know yet how they’d be handling the reservation process this time. Well, specifically, the following was my question and his response:

Me: “And regarding the Model Y, there’s been a lot of questioning if you’re going to have the same process as with Model 3 with reservations, if you’re going to shorten the reservation timeline or if you’re going to have a different process this time around.

Elon: “We haven’t made a final decision on that.”

OK, before we toss Elon some unsolicited suggestions, let’s just drop a handful of key pros and cons about the reservation system used for the Tesla Model 3.

Pros:

• Hundreds of thousands of $1,000 reservations = quite a decent no-interest loan.
• Customers feel more committed to a company and product when they’ve put money on the line (even refundable cash money).
• This is a bumper sticker for good press — very good press. (At the beginning.)
• A reservation list that involves money down helps Tesla to plan production for demand and also tells Tesla where its future customers live (and, thus, where Tesla should build more Superchargers, service centers, etc.).
• The long reservation list proves to the world — including other automakers — that, yes, there’s a shit ton of demand for good electric cars.

Cons:

• Separating dudes from their money for a long time can irritate a brother.
• If you were #2 in line but ended up being #222,222 to get the car because you’re not as rich as the others (or simply don’t want to fork over $9,000 for battery capacity you don’t need), you might be pissed. (On the other hand, the wait means that you’re more likely to get a high-quality build and you have more time to save up the cash for the car.)
• The reservation list sort of doesn’t really matter — unless Tesla changes its production approach with the Model Y, which seems unlikely. (Yeah, you get in the front of the line for whatever variation of the vehicle you want, but unless you’re reserving a very specific version of the vehicle, production will probably be rolling so fast by the time Tesla gets to your variant that it doesn’t really matter.)
• You have to manage not only all of the reservations but also all of the cancellations that come along due to impatience, bitterness, or just simply life. You also have to deal with the bad press that comes from such people complaining on social media or to major media outlets.
• When it comes down to it, if the base price of the model isn’t actually available for 1½ years after higher-priced versions of the car, yikes, you’ve got a bit of a PR and customer happiness problem on your hands!

So, what to do?

I didn’t have big pre-conceived notion of how Tesla should handle Model Y reservations and production, but I figured Elon Musk and team must have thought a lot about this, so I was curious to hear what improvements they were planning. But who needs them, #amiright? Without any word from the dude or his crew on probable changes, some members of the Tesla Motors Club forum just jumped in and threw some wonderful ideas in the hat. Perhaps Tesla should just adopt these fanboy/fangirl suggestions.

One forum member, “GaryW,” provided a handful of good ideas, questions, and commentary (as well as some compliments that I’ll leave in the quote for maximum CleanTechnica promotion):

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Zach, thanks for all your work on Clean Technica and all your other sites.

He was clear in the Tom Randall interview that Model Y is top of mind after Model 3.

I would appreciate any thoughts about the model Y ‘dilemma’.

Mid-sized SUV’s are among the hottest vehicles in the US, while mid-sized sedans are among the weakest.

I really think the Tesla team was surprised by the number of Model 3 reservations. The demand may have caused them to push Model 3 production harder than they would have otherwise. This push was not all positive.

What if they recreated this with the Model Y? Since the size of the market is so much bigger, is it possible they get 1,000,000–2,000,000 reservations? Or even more? I’m thinking they don’t want another trip to Hell, either with money or manufacturing.

So maybe they are mulling over their options, and don’t have a plan yet? Here are a few changes I could see them contemplating:

1) Announce the car after they are farther along? If the care is closer to production, this could reduce a number of risks.

2) Announce a higher end Model Y first? They could always bring out a lower end model whenever it makes sense. They get a lot of unwanted press about the lack of the $35K availability for the Model 3.

3) Ask for a higher deposit? This could reduce the craziness of many people getting in line to get in line.

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Great points, eh?

Point #1 is something I actually assumed would be the case, until Elon tweeted about showing the car in March, which seems like a similar timeframe in the development process as with the Model 3. But maybe Elon could walk that back and delay the Model Y showing. (Or maybe March 15 is indeed the perfect date for that.)

As far as #2, I totally agree — don’t even mention the expected eventual base price until you’re close to producing it. It’s not worth the headaches and it can actually be deceiving to some customers who don’t follow Tesla obsessively.

I think I prefer #3 — asking for reservations of $5,000, for example — over $1,000 reservations or not asking for reservations at all. It helps to get a sense of how many people will really buy the vehicle and where they live, and if people are able and willing to put down $5,000 for an indefinite period of time, they better understand the risks and they will almost certainly be ready to buy the car when it becomes available.

“Words of HABIT” took some of those questions and suggestions a step further, contributing the following (note that “MY” = “Model Y” and “M3” = “Model 3,” not “BMW M3,” which is obviously old and boring news):

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My thoughts on MY:

* No refundable reservations in favour of non-refundable deposits, and only accept for premium orders to start (refer to next point).

* Acknowledge upfront LR and Dual Motor and Premium Package and Performance to be produced first. (it will happen anyway.)

* Once the worldwide demand has been sustained for premium MY orders — say, 3 years after start of production — only then offer the base version SR MY to keep ramping production higher.

* Tesla should not even comment on SR MY base price as this traps them into a potentially far lower price that what the market is willing to pay, which is what is now happening with the M3 SR base model.

While I never though M3 would bite into MS or MX sales (we now know the opposite to be true, M3 increasing MS & MX sales due to cross selling), I do believe MY will bite into M3 sales. I for one would have preferred small SUV over a Sedan type and would have changed my order in a heartbeat had MY been available now. If Tesla follows the above points, they can ensure continued increase in M3 sales for the foreseeable future and keep MY as a premium product, which is really no different than MS is to the MX now. IMHO anyone hoping for a $35k base price for SR MY will be sadly mistaken. Law of supply and demand, and demand will outstrip supply for the foreseeable future.

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I love these ideas, especially the suggestion to take reservations/deposits for certain trims in order of planned production. I also think Tesla should limit such reservations/deposits to whichever continent(s) the car will first be available on. (In other words, if the Model Y won’t be shipped to Antarctica until 2025, don’t let people or intellectually gifted penguins living there reserve the car until closer to that time.)

It has been a painfully long wait for people in Europe (I was living there) who are sitting with their Model 3 reservations unfulfilled while cars roll into tens of thousands of American and Canadian homes, and I imagine it’s even worse in places like Australia and Antarctica. Overall, I just figure the upfront cash isn’t worth the hard feelings that inevitably develop. (Also, I’m a little sick of reading gripes from Europeans and Australians waiting on their cars — no offense, eager customers. )

Any other thoughts on how Tesla should proceed with Model Y reservations, demonstrations, and communications?

Check out more Tesla Model Y stories to dive further into Tesla’s next big thing.