A dangerous fix
Tesla’s plan for reaching its gross margin target should be even more worrisome to investors. Management explicitly stated that it wants to push more of its Model S and Model X production toward the priciest, most profitable versions of those models.
Tesla seems to be resorting to the same tactic for the Model 3, which is a much more significant decision. After all, even the cheapest versions of the Model S and Model X are extremely expensive. By contrast, the Model 3’s affordability is supposed to be a key selling point.
The Model 3 theoretically has a $35,000 starting price, but it’s not clear when Tesla will start to produce this base model. For the time being, it is only building a top-of-the-line $49,000 version of the Model 3. Recently, Tesla pushed back its estimate of when the base model will be available to late 2018. This move could have significant ramifications on price-sensitive customers who were counting on getting the $7,500 federal tax credit (which will phase out over time) just to afford the $35,000 base model.