What 20,000 Model X Orders Says About Tesla Motors, Inc.'s Long-Term Potential
Tesla Motors customers have reserved more than 20,000 fully electric Model X SUVs. Yes, it's a small number compared to the entire automotive market. Global auto sales in 2013 surpassed 80 million. U.S. auto sales were 15.6 million. But for just one model with a starting price that will likely be close to around $75,000 and an average selling price that could near $110,000, this sort of demand for the X is a big deal. Even more, it's indicative of the sort of relative enthusiasm we could see at the mass-market level when Tesla launches its lower-cost Model 3.
Tesla's impressive demand
For a better look at the demand story for Tesla's next attack on the luxury auto market, consider this context from Tesla CEO Elon Musk on X demand during the company's second-quarter earnings call:
Let's just put the orders in context. There are no cars available for a test drive. There is no information about the cars in our stores because we're only selling the S. In fact, if somebody comes in who wants to buy the X, we try to convince them to buy the S. So we anti-sell it. And we don't really provide all that much information or details about the car or provide a definitive date on when you can get it. Despite all that, there's huge demand from around the world for the X.
Demand for Tesla's Model S is also impressive. In the car's first full year of availability (2013) it was the best-selling vehicle in North America among comparably priced cars. And even after the Model S crushed the luxury vehicle market in 2013, Tesla still can't ramp up production fast enough to keep up with demand, the company explained during its second-quarter letter to shareholders.
"[E]ven though we increased both production and deliveries, average global delivery wait times increased because our production growth was unable to keep pace with increased demand," Tesla noted in its second-quarter letter to shareholders. Furthermore, the company says that even in its most established markets, orders are still growing sequentially -- and at a much faster rate than in the rest of the automotive industry.
But Tesla thinks it can duplicate the success of the S with the X. In fact, Elon Musk expects the Model X to do even better.
The potential of Model X
Musk has given us a glimpse at what the company is expecting with the Model X on several occasions.
During the company's Q4 2013 letter, Musk predicted that demand for the X would exceed demand for the S. Though he emphasized that this was a guess, he said it was his "best guess."
Again Musk hinted during Tesla's Q2 2014 call that Model X deliveries should eventually at least match Model S sales. Pointing to the company's guidance for a 100,000 run rate of annualized delivery by the end of 2015, Musk said that half of those should be the Model X.
Musk went on during the Q2 call to update investors on the current demand story. "[T]here's huge demand from around the world for the X," Musk said. Furthermore, he emphasized that even though customers who have placed orders for the vehicle have very little information about it, he's confident they will be happy with their decision. "They don't really have enough information to know they're right, but they are."
A glimpse of what is to come?
Will the Model X really help Tesla reach a rate of annualized sales levels of 100,000 deliveries by the end of 2015, up from guidance for 35,000 vehicles this year? Early blockbuster demand for the X and demand for the S that continues to grow, even in Tesla's most established markets, suggests this is a realistic outcome.
But here's the most thought-provoking takeaway from this impressive Model S and Model X demand: What happens if Tesla can offer a similar all-electric, high-performance value proposition with a $35,000 vehicle? Indeed, this is exactly what Tesla plans to do with the Model 3. Would this car also outsell other comparably priced sedan models in North America? Does Tesla's fast-growing backlog of Model X orders offer a sneak peek into consumers' healthy appetite for electric cars?
As it turns out, electric vehicles, when they are built the right way, present a very compelling value proposition to consumers. If Tesla can spark the same sort of relative demand with its Model 3 at a mass-market price point that it is creating at high-end price points, just imagine the potential.
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The article What 20,000 Model X Orders Says About Tesla Motors, Inc.'s Long-Term Potential originally appeared on Fool.com.Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends and owns shares of Ford and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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