Tesla Inc. heads into the Model Y’s unveiling beset by concerns about demand and margins.
The Silicon Valley car maker is scheduled to reveal the Model Y, a compact SUV, at 8 p.m. Pacific time Thursday at its Los Angeles-area design studio. The event will be live-streamed.
Tesla shares TSLA, +1.98% ended nearly 2% higher Wednesday, but they are down more than 15% in the past 12 months, contrasting with gains around 1.7% for the S&P 500 index SPX, +0.69% over that time.
The shares have lost about 3% since Chief Executive Elon Musk on March 1 tweeted the date of the Model Y unveiling.
If Tesla had hoped to quash the worries by announcing both a cheaper Model 3 sedan and a Model Y reveal within days, it has not worked. It also kept Tesla bears and bulls entrenched.
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Adding to the demand and margins worries, the company also said it would likely not show a profit in the first quarter, and it has flipped-flopped on a plan to close its stores.
U.S. consumers have gravitated toward SUVs for years, and five-seater, compact SUVs are part of the larger segment’s allure thanks to their fuel savings and lower price tag.
While the crossover SUV segment has proven to be very popular, “the key question is whether consumers will want to buy this vehicle over others in an increasingly crowded segment, particularly given the absence of incentives,” said Garrett Nelson, an analyst at CFRA.
“The other concern is that the Model Y will likely hit the market around the same time as numerous 2021-model-year electric vehicles that various competitors have in the pipeline,” he said.
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The Model Y’s unveiling could boost “incremental reservations” given the larger global market for crossovers than sedans, and help Tesla’s cash balance thanks to a likely reservation-deposit system, analysts at Goldman Sachs said in a recent note.
A new product, however, “could further weigh on Model 3 demand as consumers decide to wait a little longer to purchase a Tesla crossover vehicle,” said the analysts, led by David Tamberrino.
The Goldman analysts said they still expect the introduction of a cheaper Model 3 to weigh on Tesla’s margins this year.
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They “now expect a meaningful working capital headwind in 1Q19 — and for quarter-ending cash to come closer to the $2bn mark.” The Goldman analysts kept their sell rating on shares and said they expect first-quarter deliveries and earnings “to disappoint.”
Analysts at Wedbush, led by Dan Ives, see the Model Y on a better light. The unveiling of the crossover model “could be a potential game changer for Musk & Co. when this product goes into full production in 2020,” they said.
The Model Y is likely to cost in a range between the high $30,000s and $50,000s, depending on features, they said.
It could unleash “massive demand” in the electric SUV market, which “could capture incremental demand, especially in the U.S., which is key to hitting longer-term unit demand and profitability metrics,” the Wedbush analysts said.
By the second quarter of next year, some 10,000 Model Ys could be delivered, the analysts said. Features could include a third row of seats, and perhaps “gull-wing” doors like the Model X, they said.
