Tesla Isn't Planning to Refresh Its Model S and X
While most of the attention regarding Tesla (NASDAQ: TSLA) stock has recently been on the company's Model 3, Tesla's older and pricier models are still critical to the company's success. Sure, the Model 3 now accounts for about 80% of the automaker's quarterly deliveries, but the Model S and X still have fatter margins, making them an important element in the company's ongoing expansion.
To help reinvigorate sales of the two vehicles after they pulled back sharply earlier this year, some investors have been hoping the automaker would release refreshed versions of the vehicles. But investors shouldn't get their hopes up. There currently aren't any plans for a refresh, Tesla CEO Elon Musk said on Twitter this week.
The Tesla Model X. Image source: Tesla.
What you see is what you get
When asked on Twitter on Monday when a Model X refresh is coming, Musk responded, saying, "There is no 'refreshed' Model X or Model S coming, only a series of minor ongoing changes." For the most part, therefore, what potential customers see today is what they get.
But Tesla will continue with its practice of continually updating its vehicles with beneath-the-surface changes that make its vehicles better over time. "[The] most significant change in [the] past few years was to use high efficiency Model 3 rear drive unit as S/X front drive unit," Musk continued in his tweet. "That went into production 3 months ago."
This contrasts with speculation in the hyperactive Tesla rumor mill about some major upcoming updates to the vehicles. Last summer, Electrek reported that Tesla was planning to overhaul the interior of the Model S and X, including a more spartan look and new display akin to the Model 3's interior. While interior changes are still possible, they might not be as significant as imagined. In addition, they may be introduced more gradually instead of all at once.
Of course, it's difficult to know what Musk considers a "refresh." Perhaps interior changes would qualify as part of "a series of minor ongoing changes." But with Musk explicitly warning that a major refresh isn't in the works, investors certainly shouldn't have high expectations for physical design changes in the near future.
Is a refresh really necessary?
While a meaningful refresh to the Model S and X vehicles' design would likely bolster demand for the cars, it's not yet clear whether demand for the two models is really suffering. Sure, combined Model S and X deliveries plummeted 56% sequentially in Q1. But this was at least partly expected; the automaker pushed as many deliveries as possible to the fourth quarter of 2018 so customers could tap into the full federal electric vehicle tax credit before it was cut in half. Further, sales of the two models have already picked up substantially. Tesla delivered 17,650 Model S and X combined in Q2, up from about 12,000 in Q1.
To be fair, second-quarter Model S and X deliveries were still down 21% year over year. But it may not be until Tesla's first-quarter slump is several quarters in the rearview mirror before investors see whether the period was more of a one-time whiff or indicative of declining demand for the two models.
Nevertheless, Tesla will still need to at least keep up its method of constantly improving its vehicles with a series of smaller changes that -- hopefully -- add up to big enough changes to keep Model S and X deliveries from falling further.
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Daniel Sparks owns shares of Tesla. The Motley Fool owns shares of and recommends Tesla and Twitter. The Motley Fool has a disclosure policy.
