Why one analyst thinks Tesla's Model Y could 'ultimately cannibalize' some Model 3 sales
- Tesla is due to begin deliveries of its Model Y vehicle in March 2020.
- "A key question is whether Model Y demand will ultimately cannibalize Model 3 volumes," analyst Toni Sacconaghi of Bernstein wrote in a note Tuesday.
- He added that any softness in Model 3 sales could spook investors near-to-medium term.
- Here's why Sacconaghi thinks the Model Y could take sales from the Model 3.
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Tesla is due to start deliveries of a new vehicle, the Model Y, in March 2020. At least one Wall Street analyst is concerned that the Model Y will take away sales from another Tesla vehicle, the Model 3.
While demand for the new Model Y appears promising, "a key question is whether Model Y demand will ultimately cannibalize Model 3 volumes," wrote Toni Sacconaghi of Bernstein in a Tuesday note.
This could present an issue for Tesla, as "any softness in Model 3 sales or orders domestically or in Europe could ultimately spook investors near-to-medium term," he wrote.
Sacconaghi's main argument supporting Model Y cannibalization of the Model 3 is simple - the cars look too much alike. "There is a striking physical similarity" between the two cars, with the Model Y being more of a "coupe" than an SUV, Sacconaghi wrote.
He also added that there are limited functional differences between the two, and when the Model Y launches, the third row option of the vehicle will not be available, similar to the Model 3.
"In short, prospective Tesla customers likely won't find the two cars to be materially different and certainly much less different than Model S. versus Model X, or other luxury SUVs were relative to their sedan counterparts," Sacconaghi said. He pointed to German original-equipment-manufacturer case studies that showed some cannibalization when automakers released SUV versions of their well-known sedan offerings.
In addition, Sacconaghi writes that while Tesla didn't see any "visible cannibalization" to the Model S when it released the Model X, there is some evidence that sales were hurt over time. Sales volumes of the Model Y saw "limited growth" after the Model X volumes grew to be more than 2,500 units per quarter, "suggesting that Model X's impact may have been that it caused Model S sales to stagnate," according to the note.
While Bernstein worries that the Model Y could ultimately steal sales from the Model 3, Tesla's new Shanghai Gigafactory could even the balance, according to the note.
"The ramp on the domestically manufactured Model 3 in China over the course of 2020 could ultimately neutralize the impact on the global Model 3 volumes," Sacconaghi wrote.
Bernstein has a "market perform" rating on shares of the Elon Musk-led automaker, and a price target of $325. Given recent volatility in Tesla's stock, Bernstein's price target for the automaker is under review, according to the note.
Tesla has gained roughly 84% year-to-date through Monday's close.
