In an interview on Bloomberg, Matt DeLorenzo is only somewhat right that the new Tesla Model S P85D is counter to the mission of converting the world to battery electric cars.
On the surface, Matt is correct that to really fulfill Elon Musk’s goal of transforming personal transportation, Tesla needs to build huge volumes of cars that people who aren’t living off silicon valley stock options can afford to buy. However, in order to do that, Tesla actually needs a sustainable business model and so far, 11 years after being founded, the company has yet to turn a profit from building and selling cars.
That’s where machines like the P85D come in. Sure, the world doesn’t really need a 691, battery-powered sedan (not that I wouldn’t seriously consider one if I had the cash but that’s another story). But to get to the promised land of building a mainstream car, Tesla (or any other car manufacturer) needs to have sufficient cash flow to pay it’s own bills which means that margins need to go up significantly.
Developing and building cars is a hugely capital intensive undertaking. In addition, to keeping the current Model S up to date, Tesla is developing the Model X, Model 3 and whatever else it has in the pipeline. The Model X shares a platform and most hardware with the S but the Model 3 will have to be all-new in order to hit its price targets. All of this will require investment in tooling and let’s not forget the billions that will have to be spent on the vaunted Gigafactory.
So lowering cash outflow in the near term is pretty much off the table.
All of which brings us back to the P85D. With a base sticker price of $120,170, the AWD S adds nearly $27,000 to the starting price of the P85. A conservative estimate would put somewhere between $10,000 and $15,000 of that incremental cost as pure extra margin after subtracting the added equipment for the P85D.
If Tesla can move 5,000 of these high-end cars a year, it won’t have any notable impact on greenhouse gas emissions but it will add $50-75 million (and maybe a lot more) to the company’s bottom line and that’s what Tesla really needs right now in order to keep its momentum going and help fund the new products that will support Musk’s vision.