Published on March 15th, 2019 | by Zachary Shahan0
Tesla Model Y Announcement Implies No Demand Problem For Tesla Model 3
March 15th, 2019 by Zachary Shahan
One of the expectations being tossed around before the Tesla Model Y unveiling was that it might be produced much sooner than initially forecasted. Some Tesla fans hoped production could start at the end of this year, or even in the middle of this year. That’s clearly not going to be the case.
As far as Tesla’s fundamental ability to produce the vehicle, it seems like that could have been possible. The crossover is ~76% the same as the Model 3 and the remaining ~24% probably wouldn’t be a big challenge to integrate. Elon Musk indicated towards the end of 2018 that the Y was basically ready to be produced — the design work had more or less been completed — so there was a lingering question of whether Tesla might surprise us with a quicker-to-market approach. But that would largely depend on the Model 3, as I’ll get to in a moment.
While the Model Y is probably going to be produced at gigafactories (Gigafactory 1 in Nevada and Gigafactory 3 in Shanghai, China), one other possibility could be (or could have been) squeezing some units out of the Fremont factory. It would be tight, but it could potentially be done, especially in one particular scenario — a scenario of lower than expected Model 3 demand.
If Tesla Model 3 demand was lower than expected, Tesla could potentially modify an assembly line or two to produce the Model Y in Fremont as well. That would make more sense than having underutilized Model 3 lines. And with ~76% of parts being the same, I’m sure it wouldn’t be too hard to produce the necessary body panels, windshields, and a few other unique parts needed to manufacture the Model Y instead of the Model 3. It would mostly hinge on Model 3 production capacity versus worldwide demand.
Not only has Tesla given no indication that it would produce the Model Y in Fremont (saying, on the contrary, that the crossover will probably be produced in Gigafactory 1 in the US), but the news from last night is that the Model Y won’t be produced until late next year. That’s a long time off, and it indicates to me that — despite the hype — Model 3 demand is strong and is genuinely expected to be strong indefinitely.
Yes, there must have been a drop-off in US demand due to the US federal tax credit getting cut in half, due to Tesla working its way through a long reservation list, and due to the fact that word of mouth (even for the best car on the planet) takes time to spread and turn into sales. Most people have no idea you can now get a Tesla for $35,000. Well, most people probably have no idea what a Tesla is. That will change as normal people start to notice hundreds of thousands of Model 3s on the streets, but it will take time.
Of course, there’s plenty of opportunity to say my takeaways here are a stretch. What if Tesla simply could not be ready to produce the Model Y until late in 2020, no matter what? There’s plenty of opportunity to conclude that demand is something you have to take day to day and we don’t know what the coming months hold. Elon himself noted on a recent call — to clarify for people who don’t recognize this anyway — that all of their demand forecasts are essentially guesses. This car is new and unique, and the segment is thus new territory, so we have to see how the (often irrational) market actually responds.
Nonetheless, the Model Y production timeframe was a positive sign for me — even though I’d love to see the Y available sooner than later. It indicates no rush to get the Model Y out the door in order to firm up Tesla vehicle demand or to provide a hedge in the case of a Model 3 demand drought.
We’ve already published a number of demand levers Tesla could still pull to stimulate more Model 3 sales. Until more of the big ones are pulled, perhaps everyone should just chill on the issue of Model 3 demand.
Or not. This is Tesla we’re talking about, after all.
What are your thoughts on the Model Y production forecast, Model 3 demand, and any puzzle pieces in this realm that I’m ignoring?
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