Tesla Shares Drop after Mediocre Model Y Reveal
Originally published on: CCN
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March 16, 2019
Tesla’s Model Y reveal, led to a mostly unimpressed audience and unenthused investors. Does the largely hype-less response show a market well-addressed or indicate declining interest? A definite sign in shareholder interest is the TSLA share price decline following the announcement.
Tesla expects to see a rise in demand for the Model Y of at least 50% over the model 3—or at least, Musk expects the spike in demand. But what makes him so sure it will come? One thing which may clue him in: Tesla’s E-SUV, the model X, accounted for nearly 20 percent of Tesla sales last year.
Despite the Model Y transitioning into a more cost-conscious audience which also wants an E-SUV, investors and analysts seem disappointed that there isn’t a new, disruptive feature added to the vehicle. This disappointment has been displayed in the form of back to back Tesla stock price drops in the last six weeks.
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What is the purpose of a Cheaper Model 3 and a low-cost Model Y?
Musk and Tesla are working to lay out infrastructure and product availability for autonomous Electric vehicle (EV) use, to reduce global dependence on fossil fuels. While much of the world’s electricity is still dependent on fossil fuels, there is a substantial efficiency increase in EV energy consumption compared to gasoline fuel consumption.
When the supply chain of getting the fuel extracted, refined, shipped, and pumped into the gasoline vehicle is considered, the number is closer to a 900 percent efficiency increase.
The goal Musk champions, effective reduction of emissions on a global scale requires two facets of business to be true:
First, the car must be affordable by the masses. Second, the car must appeal to the masses.
Investors seem to fear the reduced Model 3 cost, as displayed in a 7 percent drop in Tesla stock following its announcement. Tesla buyers have also expressed outrage at the cost reduction mid-service life for preexisting Model 3 owners.
Why are Tesla cars More Expensive Than Other EVs?
Tesla cars are more expensive because they are a luxury product—a product which aligns with core values in the consumer, so they are willing to pay much more for them. Tesla cars also provide stimulating acceleration and long driving range to sate their market without making them sacrifice. Creating market appeal? Check.
Consumers have to be able to afford the vehicle they want, else the cars can’t sell. That doesn’t mean the prices should be in the floor either, however. Establishing a price point which both sustains the business and allows the market to adopt the technology creates a nice fit here. Model 3 price cut, check. Model Y comprised of 75% Model 3 parts? Check
Tesla cars, as luxury products, tend to fill niches that other automakers don’t, resulting in a higher price tag than regular cars. Having said that, vehicles like the Tesla Roadster are much cheaper than their traditional vehicle counterparts, with better functional stats in some areas. Tesla also has a bit of a checkered past with safety.
Analysts are speculating that the cost of Tesla’s Model Y is too high, compared to other vehicle manufacturers. The result, following its announcement, has been bearish speculation from several large firms and another 5 percent drop in Tesla stock prices.
How will their luxury brand impact sales and adoption of the vehicle?
Luxury branding tends to drive sales within the Millennial markets because the demographic tends to seek out and value things differently than the previous generations. Among the drivers of millennial purchasing patterns is quality of products.
Tesla provides lower costs for luxury and leading the charge for autonomous vehicle deployment both position Tesla well to achieve their goals. The question is, why is the Model Y announcement lacking hype a bad thing? The company has already completed most of the work for their production. much like the Model A and T, which helped start the automobile era through mass production.
The question here is: Will Tesla’s Model Y impact the market? The answer? It has the potential to, but nothing in business is guaranteed.