7 Reasons the Tesla Model Y Disappoints Investors

Wayne Duggan

The new SUV hit with a thud on Wall Street.

Tesla (ticker: TSLA) investors didn't get the reaction they wanted from the market following the highly anticipated unveiling of the Model Y, Tesla's new SUV starting at $39,000. Tesla stock finished Monday's session under $270, its lowest closing price this year. The stock is down 22.3 percent in the past three months, and it seems Wall Street isn't expecting much help from TSLA's Model Y. Several analysts and experts, including former Kase Capital Management hedge fund manager Whitney Tilson, say the Model Y event wasn't good for Tesla. Here are seven problems with the Model Y.

The Model Y looks like the Model 3.

Tilson says the problems with the Model Y start with the aesthetics. Tesla is known for its sexy and unique designs, but the Model Y is far from unique. Tilson and several other critics say the Model Y looks almost identical to the Model 3, and even Musk himself said the two automobiles will share many of the same parts. The Model Y is 10 percent bigger and 10 percent more expensive. For $39,000, it may be a tall order to get buyers excited about a vehicle model that's nearly a carbon copy of another model.

It's not a true SUV.

Tilson says the Model Y isn't a true SUV but is rather, as Edmunds put it, a "slightly-raised Model 3." Edmunds says passengers with long legs "have to scrunch up a bit to sit comfortably." Musk repeatedly called the Model Y a "midsize SUV," but Car and Driver referred to it as a "compact crossover" that's a "more spacious version of the Model 3." Some may argue that it's good the Model Y is an alternative to larger SUVs. But if too many buyers simply see it as an alternative to the Model 3, Tesla may have a cannibalization problem.

Musk's presentation fell flat.

Elon Musk's marketing is typically one of Tesla's strong points, but he took some heat for the Model Y presentation. Zero Hedge said Musk "seemed none too enthused" during the "uneasy and melancholy" presentation. TheStreet author and analyst Anton Wahlman said Musk provided investors with no comfort about Tesla's turbulent financial situation and "seemed like he had something on his chest that he couldn't say." Tilson says he is an admirer of Musk and all he has accomplished at Tesla and SpaceX, but at this point Musk "has no more rabbits to pull out of his hat."

The reveal may have been rushed.

The Model Y reveal came sooner than some expected, but that may not necessarily be good news. Bank of America analyst John Murphy says Tesla may be simply following the Model 3 playbook in revealing the vehicle and accepting cash deposits as soon as possible to shore up a troubled balance sheet in the near term. "This could buy TSLA time before returning to the (public) capital markets," Murphy says. This creative accounting can result in a "less-than-obvious (and free) capital raise" for Tesla. But it is essentially nothing more than booking future cash flow in advance.

Competition will be fierce.

By the time the Model Y is delivered to consumers starting in 2020, the crossover market may be extremely crowded. Ford Motor Co. (F), General Motors Co. (GM) and other automakers are scaling back their sedan businesses to focus on higher-margin trucks and SUVs. Bank of America estimates 40 percent of the new vehicle models launched between 2018 and 2021 will be crossovers. As a result, Murphy says there will inevitably be pricing and margin pressures. Margins are already one of the primary concerns for Tesla investors when it comes to the Model 3.

The Model Y is priced high.

Musk said the Model Y will start at $47,000 with a lower-priced version coming in 2021, priced at $39,000. While the average vehicle sales price in the U.S. is around $35,000 today, Murphy says that number can be deceiving. That average transaction price is heavily influenced by vehicles priced at $60,000 or higher, which sell at much lower volumes than cheaper models. Murphy estimates about 85 percent of U.S. vehicle sales take place at price points less than $35,000. He also estimates the component cost of a Model Y is about $35,000.

Deposits are large and the wait is long.

Tesla unveiled the Model 3 in March 2016, telling buyers they could put down a $1,000 deposit for a late 2017 delivery. Tesla received 325,000 Model 3 reservations within a week. Unfortunately, by the time the fourth quarter of 2017 rolled around, Tesla produced only 2,425 vehicles. Potential Model Y buyers were told to put down a much larger deposit of $2,500 for deliveries that will supposedly start in the second half of 2020. Given Tesla's past struggles with deadlines, it wouldn't be surprising to see most early buyers get their Model Ys in early 2021.

Tesla's Model Y isn't a hit with investors.

Tesla stock has fallen to $270 per share, down from $350 as recently as November. Here are seven reasons why the newly unveiled Model Y SUV failed to excite the market:

-- The Model Y looks like the Model 3.

-- It's not a true SUV.

-- Musk's presentation fell flat.

-- The reveal may have been rushed.

-- Competition will be fierce.

-- The Model Y is priced high.

-- Deposits are large and the wait is long.