Please ensure Javascript is enabled for purposes of website accessibility

Tesla Motors, Inc.'s New Model S: An Aggressive Pricing Move

By Daniel Sparks – Jun 9, 2016 at 6:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tesla's latest pricing move hints at management's growing market ambitions for the Model S.

On Thursday, electric-car maker Tesla Motors (TSLA 6.24%) announced it's bringing back a lower-cost, 60-kilowatt-hour variant of the Model S. The move highlights the company's growing market ambitions for the vehicle.

The Model S. Image source: Tesla Motors.

Meet Tesla's new Model S 60 and 60D 

It was just last April when Tesla stopped selling its lowest-price Model S, which sported a 60 kWh battery. The $71,000 model was replaced with a more formidable dual-motor Model S version with a 70 kWh battery, the 70D, which started at $75,000.

But the Model S 60 is back -- packed with a whole lot more value and a lower price. This time around, Tesla's Model S 60 starts at $66,000, includes lifetime access to Tesla's Supercharger network (for which buyers used to be charged $2,000 extra), gets 210 miles of range instead of 208, and -- here's the biggest benefit of all -- comes with a 75 kWh battery. The larger battery is available for a $9,000 fee, anytime after delivery, with a simple over-the-air software update.

Image source: Tesla Motors.

In addition to reintroducing a 60 kWh Model S, Tesla also announced a 60D, the same model with dual-motor all-wheel drive. The 60D pricing begins at $71,000.

Along with Tesla's Thursday announcement of a more aggressively priced Model S, the company stopped selling its Model S 70 and 70D. Technically, of course, Tesla's Model S 60 and 60D are the same vehicles, since both the 70 models and the 60 models actually sported a 75 kWh battery -- at least since May, when Tesla began including 75 kWh batteries in the 70 and 70D (customers could get access to their larger batteries by paying $3,000). This emphasizes just how aggressive this move was for Tesla; the company is still delivering the same vehicle and battery -- but it's offering it at an even lower price.


Tesla's decision to introduce a lower-cost Model S isn't defensive; the company has been clear that demand for its vehicle is thriving. Before Tesla began delivering its Model X SUV late last year and previewed its lower-cost Model 3 earlier this year, some investors were worried the new vehicles could begin cannibalizing sales of the automaker's Model S. But, so far, the opposite has happened: Tesla has said the first deliveries of the Model X and the beginning of reservations for the Model 3 have both been catalysts for demand for the Model S.

Tesla factory. Image source: Tesla Motors.

Tesla's recent pricing moves are more likely an attempt to grow sales of the popular vehicle even higher. In 2015, Tesla delivered about 50,400 Model S vehicles -- up from about 31,700 in 2014. In 2016, Tesla predicts it will sell 80,000 to 90,000 Model S and X vehicles combined, but a slow Model X production ramp means Model S deliveries are key to hitting this range.

Overall, bringing back the Model S 60 makes sense. I even predicted in December that Tesla would bring the lower-cost Model S back this year. A number of trends were simply beginning to make a case for Tesla to get more aggressive with the Model S: among them are manufacturing efficiency gains, rapidly improving production, lower battery costs, and the proliferation of Tesla's charging locations, which makes traveling easier for owners of Teslas with smaller batteries.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool owns shares of and recommends Tesla Motors. 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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.