Key Points
Elon Musk is known for making bold moves. When it comes to Tesla (NASDAQ: TSLA), the big change he’s implementing is a shift from making electric vehicles (EVs) to making humanoid robots. Tesla, however, still needs to make its EVs if it has any hope of supporting this massive business shift. Which is why the Model Y L is so important.
What is Tesla’s big goal?
Elon Musk has embraced the idea that autonomous devices are the future. To that end, he’s pushed Tesla to develop self-driving cars. The company is currently working on autonomous taxi services, but self-driving electric vehicles have long been a key part of the company’s technology push. The company has also been working on a humanoid robot, known as Optimus.
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To this end, the company has retooled its Fremont factory. It has ended production of the Tesla Model S and Model X, instead using the production lines to mass-produce Optimus robots. It is a bold bet, and it comes at a cost for the company: there will be fewer cars to sell. And while robotics may be the future, Tesla is still largely a car company at this point.
Will the Model Y L come to the rescue?
The Model Y is Tesla’s existing SUV vehicle. The Model Y L is an update that adds a third row of seats and a larger battery, giving it a longer range. It was first introduced in China, but has since been brought to other markets. This is where things get interesting for investors as they consider the impact of the updated Model Y on the company’s financial results.
In Australia, the Model Y L accounted for more than half of the Model Y vehicles registered in July, according to industry watchers. Roughly 40% of the Model Y SUVs registered in New Zealand were the updated version, as well. There is clearly a demand for the product in Western markets.
Now, Tesla is bringing the Model Y L to the United States. U.S. consumers tend to like large vehicles, so it seems highly likely that the Model Y L will be a strong seller in the U.S. market, as well. Consumers also like new and improved products, so there’s another positive here to push sales. And there could be an early burst of demand for a car already available in other markets, creating something of an exclusivity pitch for early U.S. customers.
But will it reginite Tesla’s sales growth? The answer isn’t a clear yes. It may get customers excited about Tesla again, but the Model Y L is an expensive vehicle. That could put a limit on demand. And Tesla is already one of the most popular U.S. EV brands, so investors probably shouldn’t get their hopes up on a massive growth spike.
Then there’s the issue of the production halt for the Model S and Model X, which has to be factored in. While they were older models, the Model Y L has to offset the drop off from those two vehicles. It is more likely that the Model Y L simply supports current sales volumes and, perhaps, adds a little to sales growth. But that may actually be all that Tesla is looking for.
The Model Y L is part of a bigger plan
At the end of the day, the Model Y L isn’t likely to be a company-changing development. It is an incremental update to an existing product. Good, but not likely to spur massive sales growth. The company-changing shift is the transition to producing and selling Optimus robots. If the Model Y L makes that transition easier, then it will be a massive success. Early sales results in Australia and New Zealand suggest the launch of the Model Y L in the U.S. market could be just what Tesla is looking for.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
