Tesla Reduces The Price of Model Y and withholds the plan for standard-range version

Tesla (TSLA) Motors cut the price of Model Y crossover by $3,000 in less than four months it started its delivery service. Also, the company canceled its initial plan to produce a lower-priced standard-range version. Added to this, Tesla said it beat analyst estimates in its second quarter and delivered about 90,650 vehicles. However, analysts revealed that the company has been combining Model Y and Model 3 in each of its reports. This is why it is impossible to gauge the performance of Model Y alone.

Vicki Bryan, the CEO of the investment research firm, Bond Angle, believes the company adopted this method of sale in order not to reveal the performance of Model Y. Bryan is of the opinion that Model Y is not profitable.

On Sunday, the CEO of Tesla Motors, Elon Musk revealed that the company would no longer proceed with its initial plan to produce a cheaper standard-range version of the crossover SUV. According to him, the expected range of fewer than 250 miles would be "unacceptably low." The standard-range version is supposed to be sold at $39,000, but with the cancellation, the cheapest Model Y still remains the long-range all-wheel-drive version which starts at $49,999. 

However, Vicki Bryan stated that the demand for Tesla’s electric vehicles has reduced in the company’s home base of the United States. According to Bryan, despite the positive review by auto critics, the demand for Model Y is still very low. Bryan also revealed that Tesla faced more than a 50% drop in demand for its Model 3 sedan in the US.

Nevertheless, after selling Model 3 for the first time in China, the company said it delivered about 90,650 vehicles in the second quarter and beats analyst estimates. However, the report revealed that the company has been combining Model 3 and Model Y in each of its estimates. Hence, it becomes difficult for shareholders, stock analysts, and potential investors to decipher the performance of Model 3 alone.

Although Musk and Tesla have once talked about preorders for other vehicles, they have never disclosed how many preorders they have taken for Model Y. In reaction to this, Bond Angle’s Vicki Bryan said: “This seems to confirm my concerns that Model Y actually isn’t profitable, as Musk has claimed. Even after effectively narrowing its Model Y offering Tesla still needs to lower price to encourage demand.”

Before the submission of the second-quarter report, Tesla has revealed that its second-quarter report would be profitable enough to include the company in the S & P 500 report. Tesla has also sent emails to a thousand employees convincing them that investors' profitability in the company promised to be high. This move further reveals the company's struggle to make Model Y a success. 

Here are some of the emails sent by Tesla

“It is extremely important for us to ramp up Model Y production and minimize rectification needs. I want you to know that it really makes a difference to Tesla right now. 

Model Y, especially GA, is the top priority for both production and manufacturing engineering. GA4 is also a top priority for facilities improvements. For those working in GA4, thank you for bearing with tough conditions. Will get better fast. I will be walking the line personally every week. 

We are doing reasonably well with S, X, and 3, but there are production and supply chain ramp challenges with Model Y, as is always the case for new products. 

Please let me know if there’s anything I can do to help.” - sent June 6, 2020. 

Another email sent by Elon Musk on June 29 reads

“Breaking even is looking super tight. Really makes a difference for every car you build and deliver. Please go all out to ensure victory!”

These two emails further revealed that the company is indeed working on hastening its inclusion in S & P 500 while also ensuring that the Model Y is successful.