Tesla Model S: An Able Pillar for Model 3 Success?

When 2018 started, no one really spoke at length about the car that made Tesla a recognized brand all over the world, the Tesla Model S. The discussion was always centered around Model 3, the production ramp and how Tesla was not keeping its promises.

Despite being thrown into the shadow of the Model 3, Tesla’s flagship sedan, the Model S, did what it was meant to do this year:

Hold its market together.

Had the Model S and its big brother Model X failed to stay on the course set by Tesla management, the electric car maker would not have managed its second quarter 2018 production ramp.

If that ramp is what made Tesla the company it is today, then it was flagship vehicles that made it possible for Tesla to take that risk. If their sales declined sharply in the first two quarters of 2018, Tesla would have been left to firefight on multiple fronts. The Q2 ramp may have never materialized.

Interestingly, Tesla’s flagship vehicles did report a sales decline in the first half of 2018, and the company said that “we are in the process of changing the quarterly production pattern of those vehicles for the various worldwide regions to ensure a more linear flow of deliveries through the quarter.”

It still sounds more of a corporate cover than anything else. But despite a year-over-year decline, Tesla sold 22,260 Model S and 21,440 Model X units in the first six months of 2018. If we assume the average selling price to be $90,000, Model S and X must have brought in nearly $4 billion during this period.

Tesla’s automotive revenue was $5.6 billion in the first half of 2018. Operating loss: $1.21 billion.

As the whole world continues to go through the SUV craze, the sword of doubt was always hanging over the Tesla Model S.

Tesla does not give as much importance to redesigning the exterior as it does to technology (i.e battery) and software upgrades. Musk explained this approach to redesign through Twitter.

He said, “Get this question a lot, so need to clarify that there’s no such thing as a Tesla “refresh”. Other car companies do this every ~3 years, but Tesla constantly upgrades vehicle hardware every week.”

When a Twitter user promptly reminded him that Tesla redesigned the exterior of Model S in 2016. Musk responded that Tesla had to correct the front design esthetic of Model S, as the nose of Model S looked like a radiator grill opening.

2013 Model S
2013 Model S: The Nose that looked like a radiator opening
2016 Tesla Model S
2016 Tesla Model S: Updated Nose

It’s almost six years since Tesla launched Model S, and no matter how many times the company updates its software over the air, the Model S is still an aging star. The timeless design and regular software updates help extend the life of exterior design, but it must be updated at some point.

Car designs will have to evolve as time rolls on. Some like Tesla may evolve a little slower, but they have to adapt to customer preferences that keep changing.

Not many will buy a Ford Model T look-alike today even if it comes with the latest technology. Change is the only thing that’s permanent in the design world.

The onus was clearly on the Tesla Model S to hold its market share in the highly competitive luxury segment all over the world. To make things a bit more tricky, the German auto giants kept refreshing their lineups to make sure that they stayed in the fight.

In its fifty years of existence, the Mercedes S Class, Tesla Model S’s chief rival, is already in its sixth generation.

The latest generation received a sharp refresh in 2017, just four years after it was officially launched in May 2013. The new Mercedes S Class is already under development and is expected to arrive sometime in 2020.

Seven years – 1 mid-cycle refresh – many incremental upgrades.

On the stock front, Needham’s Rajvindra Gill rang the warning bell mid-year saying Model S sales will be lackluster due to increased competition. His rating downgrade took a nice bite out of Tesla stock.

“Shares of Tesla Inc. TSLA are down 1.3% in Thursday (July 19, 2018) trading after Needham analyst Rajvindra Gill downgraded the stock to underperform from hold.

His new rating is based on his expectation that Model S and Model X sales will slow given competitive pressures, the expiration of tax credits, and potential cannibalization from the Model 3,” – Marketwatch

The odds were indeed stacked against the Tesla Model S in 2018, but the car that placed Tesla firmly on the global map is on course to finish 2018 on a high.

A high, because Tesla Model S did what Team Tesla expected it to do.

Tesla Model S Sales in the United States

Tesla’s home accounted for nearly half of Tesla’s sales in 2017, and this year turned out to be no different. The United States accounted for more than half the Model S Tesla sold this year.

Performance in the United States became even more important as the company struggled to hold its sales in China due to additional import tariffs.

In the first eleven months of 2018, Tesla sold 22,495 Model S in the United States, compared to 22,085 Model S the company sold during the same period last year.

Tesla Model S Sales in Europe

Europe is a key market for Tesla and Model S. With China looking bleak in the second half of 2018, Tesla made full use of its presence in Europe to divert its sales from China.

Between January and November, Tesla sold 13,854 Model S in Europe, compared to the 12,974 units the company sold last year.

Tesla Model S Sales in China

Tesla does not release regional sales figures and estimates from local newspapers are highly unreliable. According to our estimates, Tesla sold 16,500 Model S and Model X in China last year. If we assume half of those units were Model S, Tesla may have sold around 8k Model S in China.

That’s why the additional 410 Model S units the company sold in the United States through November and the 880 units in Europe will go a long way to offset weakness in China.

Tesla Model S Official Quarterly Sales Figures 

Q1 to Q339,51537,130

Data Source: Tesla Vehicle Production and Delivery Press Release

In the first three quarter of 2018, Tesla has reported deliveries of 37,130 Model S, compared to 39,515 units the company delivered last year.

Tesla Model S sales declined by 2,385 units through the first three quarters, partially offset by Model X sales which increased by 1,215 units during the period.

Tesla will be expecting to get its December sales back on track in China, as the company swiftly rolled back Model S price in the country as soon as the government announced a temporary trade war truce with the United States.

How much does a Tesla Model S Cost?

If someone had told Tesla at the start of the year that Model S sales will drop by 1,000 units in 2018, the electric car maker would have gladly taken it because Tesla is not planning to repeat last year’s sales record of 101,250 Model S and Model X units, it’s targeting 100,000 units.

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