Troubled Tesla hopes Y will be the answer

Last week's reveal of the Model Y crossover, signaling Tesla's eventual entry in one of the industry's hottest segments, might have been the most conventional move yet from an automaker that's anything but.

CEO Elon Musk presented the vehicle, planned for release in the fall of 2020, without much of the extravagance and house-music-thumping excitement that has punctuated his previous reveals. The bulk of the roughly 40-minute presentation focused more on Tesla's past successes rather than the small crossover, which shares a majority of common parts with the Model 3 in a bid to avoid the "production hell" that plagued the car's early days. Unlike the Model X crossover with its signature falcon doors, the Model Y has little that visually sets it apart from the less expensive and only slightly smaller Model 3.

Even 18 months away from the earliest potential release, the Model Y carries a heavy burden. The vehicle, which Musk projected will outsell Tesla's other three models combined, must stack up to a slew of electric vehicles coming from more-established luxury and mass-market brands.

In the meantime, a smooth product development process would do wonders to distract from Tesla's recent troubles, including Musk's ongoing clash with the Securities and Exchange Commission, and a confusing retail and pricing strategy that it largely walked back just 10 days after blindsiding would-be customers and even its own sales staff.

"The Model Y represents Tesla's biggest opportunity yet," said Karl Brauer, executive publisher and analyst at Kelley Blue Book and Autotrader. "Every aspect of the Model Y, from design to launch to production, has the potential to improve — or damage — Tesla's reputation with mainstream consumers. A big win would serve Tesla well at this point in the company's journey from startup to serious automaker."

The first available version of the Y, built on the same platform as the Model 3, will have a 300-mile range and $47,000 price tag, Musk said.

The standard version, priced at $39,000 and touting a 230-mile range, will be available in 2021, Tesla said. The vehicles can be configured to include a third row of seats for an additional $3,000.

It's still unclear where the vehicle will be built.

"This will be the first time a Tesla vehicle will face serious, direct competition, and thanks to the quality issues and scandals over the last year, the brand's halo has started to dull," said Jessica Caldwell, Edmunds' executive director of industry analysis.

Sales of small utility vehicles are growing quickly in the U.S. as well as China. But by the time the Model Y arrives, it would face electric crossover offerings from Audi, Mercedes-Benz and BMW. Jaguar already offers its I-Pace crossover with 234 miles of range starting at $70,525, including shipping.

Ford Motor Co. has promised a Mustang-inspired, battery-electric crossover with a 300-mile range next year. During Tesla's reveal last week, Ford tweeted an image of an electric pony logo with the caption "Hold your horses."

The Model Y will not have the benefit of the federal tax credit that has helped ease the sticker shock of buying a Tesla. The figure was halved in January to $3,750 per vehicle, and it is scheduled to fall again in July to $1,875 before going away Jan. 1.

"It's been easy for Tesla to scoff at the traditional way of selling and marketing vehicles since they've been drawing sales from a passionate fan base," Caldwell said. "But with very attractive electric SUVs on the horizon from BMW, Mercedes and Audi, someone considering a Model Y will have a lot of choices."

The Model Y unveiling may have had as much to do with the company's financial position as it did with the need to build a less-expensive crossover.

Musk has indicated Tesla expects to post a loss for the first quarter, and this month, it dipped into its cash reserves to pay back a convertible bond obligation.

Tesla opened order banks for the Model Y following its presentation, requiring a $2,500 refundable payment vs. the $1,000 it collected for Model 3 reservations starting in 2016.

The unveiling occurred the same week Tesla said it would need to raise vehicle prices roughly 3 percent across the board. On Feb. 28, the company had slashed its prices and said it would close nearly all of its retail locations. Some analysts at the time saw that as an indication that Model 3 demand may already be slowing, but Musk said last week the company aims to sell its 1 millionth vehicle by this time next year.

"One certainty is that Tesla's sales will grow in 2019, and that growth will come at the expense of other automakers," said Tyson Jominy, managing director of the Power Information Network at J.D. Power. "If there is one thing auto industry observers have learned in recent years, it's not to underestimate Tesla."