While Tesla Motors (NASDAQ:TSLA) has been ramping up production and sales of its Model S and expanding its international footprint, it's also been working on extensive development work for its next vehicle: the all-electric Model X crossover. More recently, however, Tesla has probably been putting the final touches on the model, because production design prototypes will soon begin making their way through Tesla's production line, the company says.
Retooling for success
Last week, despite severe supply limitations and all the demand the company could desire despite spending no money on advertising, Tesla's factory went on pause.
Hail the Model X. Tesla is retooling the factory to boost capacity for production for the Model S and to make way for Tesla's next big thing.
Tesla spokeswoman Alexis Georgeson explained:
This week, we started a two-week pause in production at our factory in Fremont to expand capacity, supporting immediate increased production of Model S and the introduction of Model X. The effort will increase production capacity from 800 to 1,000 vehicles per week by the end of 2014. Regular production will recommence by August 4.
The next major step in Model X production should come in early 2015, when Tesla said it will begin producing models for customers.
The Model X reservation line, which requires a $5,000 deposit, has reached figures exceeding 11,000 -- so Tesla has its work cut out for it. Notably, 11,000 vehicles is about 4,000 more than Tesla has delivered in any single quarter.
The Model X will mark Tesla's first all-wheel-drive vehicle, enabled by dual motors. The SUV will race to 60 mph in less than 5 seconds, Tesla says. The Model X will be priced comparably to the Model S -- perhaps just a few thousand dollars more than the luxury sedan if Musk holds true to comments he has made.
More potential than you may expect
Crossovers and SUVs are becoming increasingly popular, and Tesla plans to bank on this trend. In fact, a new report from IHS Automotive asserts that combined SUV and crossover sales have overtaken sedans in the United States. This category accounted for 36.5% of new-vehicle registrations in the U.S. from the beginning of the year to May, IHS reports. This figure compares with 35.4% for sedans.
Tesla is expecting a similar trend. In the 2013 fourth-quarter letter to shareholders, Tesla CEO Elon Musk gave investors a glimpse of the Model X demand it is planning for.
[T]he Model X demand is very high. ... Even though there is zero marketing for the Model X ... demand seems to be remarkably high. ... In relative terms, it appears that the X will see at least as much as demand as the S. And if I were to guess -- and this is just a guess -- I think the X demand will exceed S demand. ... That's my best guess.
But just because Tesla has considerable demand for the Model X, and Tesla is finally bringing it to market, doesn't mean Tesla is about to outperform expectations. This stock has some incredibly bullish assumptions priced into it. So investors should consider expert execution on the Model X as a requirement, not as a catalyst for the stock.
The only area Tesla really has room to surprise with the Model X, at this point, is with the final design or surprise features that make it to the final version of the crossover.
With production prototypes about to be built, Tesla may finally take the wraps off the production version of the Model X in the next few months. Tesla said in the 2014 annual shareholder meeting that the production version of the X looks better than the design on its website today.