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Earlier today I read an OpEd on Autoblog, Let’s Face It: Tesla’s Model X was a Mistake. While I don’t subscribe to this clickbait, it caused me to think more about Tesla, the Model 3 and their future.

The article asserted the Model X was a mistake, because the project became bloated insanity?—?they basically threw in every feature they could think of. Tesla probably sees this as a technological achievement and a landmark of carmaking. Certainly, themodelx Model X is impressive. Those Falcon doors are fun to watch (after the initial novelty wears off, does one start to agonize over their speed, or lack thereof). In fact, all the doors can open as if you have an invisible valet. It’s all very cool for a production automobile.

Back to the article: I think Tesla must continue upscale. I left this comment on Autoblog and sharing here:

The Model S has crept up from its $50k-ish pricing to over $100k depending on equipment. I read the average selling price is $85k. To me, this is indicative of a strategy to gain more profit to offset the costs and lack of scale. The Model 3 cannot scale to the numbers everyone expects?—?Tesla doesn’t have the infrastructure. Car showrooms are not Apple Stores?—?the complexity of distribution and support is too great.

Model X is the right strategy, albeit an overly complex one (I’m very concerned about their reliability). Continuing to go upscale is Tesla’s only hope. There simply isn’t enough margin to play in the $45k arena, especially considering their lack of scale.

I predict Model 3 will cost a lot more than anticipated?—?I’m guess around $65k base price. They’ll justify the cost by comparing it to a loaded up BMW 3-series with Tesla’s tech advantage.

With the Volkswagen Group showing prototypes of 300-mile range EVs and publicly speaking of nearly 200-mile range Golfs (around $35k), I’d be very concerned to be Tesla. At 2% of the US market, EVs account for a pittance and aren’t profitable. If the market grows into a real market, Audi will introduce a modern crossover with 300-mile range, for under $100k that is supported by a large dealer network. At that point, I would probably not want to be holding Tesla stock.

Not all is lost, Tesla can remain a strong, profitable niche player, just like an Aston Martin and be profitable. They can continue to move the technology forward and innovate. Plus, there’s battery packs and power systems they can market?—?so there’s a lot of upside in the whole company. As a car company, though, they need to reign in the hyperbole a bit and enjoy being the unique player they’ve become.

This also posted on Medium