Tesla recently confirmed that they will eliminate the base, rear wheel drive Model S 75 by the end of the year. And over the last few days, people have spotted software-locked 85 kWh battery packs in Model X 75D vehicles in Norway suggesting a battery lineup change is imminent. Many are viewing this as a sign that Tesla wants to further widen the price, performance, and feature gap between Model 3 and Model S. But that makes no sense from a business point of view. More likely, Tesla is about to surprise us with a couple of additional configuration and pricing changes.
The 2017 Tesla Model S 75 is already an amazing value at $69,500 compared to other cars in the “Grand Coupe” segment (see prior post). But long term, Tesla needs to bring the base price of Model S down to around $50,000 in order to ease the upgrade or upsell path for Model 3 owners or prospective buyers, and to strike the fatal blow on legacy automakers’ entire compact and mid-size luxury lineups. Tesla Model S is a unique car that can fight competitors above segment, below segment, and even side-to-side (e.g. sedans, coupes, grand coupes, sport wagons, roadsters, hybrids, plug-ins, CUVs, and even small SUVs). Tesla wins each segment when they can offer a significantly better car for significantly less money. $50,000 is the magic price where Tesla can win every segment especially when factoring in total cost of ownership (i.e. gas and maintenance savings make a $50,000 Tesla less expensive than a $40,000 gas car).
While Model S is a “better” car than Model 3, it may be hard for Tesla to convince prospective buyers that Model S is worth twice the price of Model 3. However, a 50% differential is much more reasonable and consistent with how other automakers price their different product lines (e.g. BMW 3 series vs 5 series). Incidentally, “under $50k” was the starting price Tesla initially advertised for Model S though it was for a stripped down 40 kWh version and factored in the $7,500 federal tax credit to achieve that price point. One could argue that Tesla has already broken through that magic $50,000 price point for a theoretical stripped down Model S since the new $69,500, 2017 Model S 75 includes $36,400 in free upgrades compared to the 2013 Model S 60 (see prior post). A new well-equipped base Model S at the around the $50,000 price point is both reasonable and follows Tesla’s regular pattern of battery capacity and price adjustments.
Again, we already know that the $69,500 Model S 75 is about to be removed from the lineup. The first surprise is that the $74,500 Model S 75D will, at the same time, be replaced by a new $77,500 Model S 85D with 280 mile range. This creates a larger price gap with the Model 3, one which Tesla can easily fill by… wait for it… re-introducing the Model S 60D for $57,500. This new Model S 60D (with an actual 60 kWh pack, not a software locked higher capacity pack) will have a range of 225 miles. We end up with an easy to understand pricing structure; each $20,000 upgrade adds 55 miles range and 0.5 second quicker 0-60 mph acceleration. (Note: Model S 100D performance is currently software limited. An acceleration improvement to 3.6 seconds will help differentiate it from the new 85D and put it on par with ~$100k competitors like the Audi RS7 and BMW M6 GC.)
So, expect the lineup to look like this by the end of 2017:
- Model S 60D (225 mile range, 4.6 seconds) – $57,500
- Model S 85D (280 mile range, 4.1 seconds) – $77,500
- Model S 100D (335 mile range, 3.6 seconds) – $97,500
- Model S P100D (315 mile range, 2.5 seconds) – $140,000
At a price of $57,500, Tesla would be able to advertise the well equipped Model S 60D for “$50,000 after $7,500 federal tax credit” at least until the credit starts to phase out (about 6 months or so). At that point, we could see a $5,000 price drop, reintroduction of the rear wheel drive Model S 60 for $52,500, or some additional free upgrades (e.g. perhaps most or all of the $5,000 Premium Upgrades Package becomes standard). Many people on the Model 3 waitlist would immediately switch to Model S given an opportunity like this. And more importantly, legacy automakers’ entire lineup of compact and mid-size luxury gasoline vehicles (all segments) won’t stand a chance against a $50,000 Tesla Model S.