Tesla Motors, Inc.'s Model X, the Falcon Winged Beast: What You Need to Know

By Markets Fool.com

For electric-car maker Tesla Motors , 2015 will be the year of the Model X. Indeed, if the Model X makes as big of a splash as the Model S has, 2015 may be remembered as the year of the Model X for the entire premium auto market. With the fully electric crossover's launch just around the corner, here's everything investors need to know about the vehicle and its potential.

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Tesla Model X prototype and the baggage (right) that fits in the rear storage of the third-row version of the vehicle. Image source: Tesla Motors.

Tesla gets adventurous
The Model X is Tesla's third car. First was Tesla's two-door Roadster, a vehicle that really served to simply prove that a fully electric, stylish car could be made. Second was the Model S, the company's first big success; the Model S proved that electric cars could actually compete viciously with similarly priced gas-guzzling vehicles.

What is Tesla trying to achieve with the Model X? With the company's crossover, Tesla seems to be aiming to push the boundaries of what a vehicle can do to the absolute limits. From styling, to functionality, to performance, Tesla wants to take the best of minivans, sports cars, and SUVs and bring them to one vehicle.

"It is an automobile above category," Tesla says on its website.

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Model X prototype. Image source: Tesla Motors.

A closer look at Tesla's promises for the car reveals that the company isn't tossing around such a lofty statement lightly. With seating for up to seven adults, unprecedented storage space for a third-row option crossover vehicle, the center of gravity of a sports car, Dual Motor All Wheel Drive, the styling and functionality of all-new Falcon Wing Doors, and a zero-to-sixty time up to 4.4 seconds, the Model X is no joke.

And leading up to the launch, CEO Elon Musk hasn't tempered his enthusiasm for the vehicle.

During the company's annual shareholder meeting last year, Musk looked up at a picture of the Model X prototype -- the only version of the X that has been shown so far -- and said that Tesla will outdo this version of the car.

"I should say that the production version of the Model X actually looks different from this. It looks better," Musk explained. "At Tesla, whenever we show a car as a demonstration item, the production car will always be better than what people saw."

Musk has eluded on multiple occasions that the starting price for the Model X will be similar to the starting price for the all-wheel drive version of the Model S. Therefore, depending on whether Tesla decides to sell a 60 kilowatt-hour battery version of the dual-motor Model X in addition to the larger 85 kWh battery, starting prices for the vehicle could range from $75,000 to $85,000.

Coming this August
The company said in its most recent letter to shareholders that the first deliveries will begin in August. The launch month comes after years of delays, citing difficulties in falcon wing doors and framing the second row seats from a side view with the falcon wing doors open to look like a "work of art."

Musk believes the X delays will work out positively for investors with a long-term time horizon.

"[W]e prefer to forgo revenue, rather than bring a product to market that does not delight customers," Musk said in the company's 2014 third-quarter letter to shareholders.

He continued:

Doing so negatively affects the short term but positively affects the long term. There are many other companies that do not follow this philosophy that may be a more attractive home for investor capital. Tesla is not going to change.

Rampant demand
Demand for Model X has been impressive. Going into 2015, Tesla had 20,000 deposit-backed orders for the vehicle on its books. This demand comes in spite of Tesla not yet showing the production version of the vehicle and as it instructs employees to try to anti-sell the vehicle in its stores by pushing Model S to customers who are interested in Model X.

Of course, time has been in Tesla's favor when it comes to racking up orders; Tesla began taking orders for Model X in 2013. But customers are able to withdraw their orders if they choose to, so 20,000 orders represents net orders after cancellations.

Tesla won't be able to fulfill demand for some time. The company is guiding for 55,000 sales of Model S and Model X combined this year, of which probably only about 5,000 will be Model X. Tesla's site says that reservations made today will be delivered in "early 2016."

Will Model X outsell Model S?
With such significant demand already for Tesla's Model X, could the vehicle eventually outsell the company's Model S? It's likely.

Indeed, Musk believes this is exactly what will happen.

"In relative terms, it appears that the X will see at least as much as demand as the S," Musk said during the company's 2013 fourth-quarter earnings call. "And if I were to guess -- and this is just a guess -- I think the X demand will exceed S demand. ... That's my best guess."

The Model X places Tesla in new, hot territory. In 2014, sales of sport utility vehicles and crossovers surpassed sales of sedans in the U.S. for the first time, according to IHS Automotive. The achievement makes SUVs and Crossovers the country's most popular body style.

Looking back at the success of the S, and light of the popularity of sport utility vehicles and crossovers in the U.S., there's no reason the X couldn't go on to outsell the S as long as the company can ramp up production successfully.

Piecing together Tesla's comments about future sales potential for its vehicles, and assuming the Model X is as successful as investors expect, could sales of Tesla's vehicles by model look something like this between now and 2017?

Asterisks indicate author's estimate. Chart source: author.

Potential impact on Tesla's business
For Tesla investors, the potential impact of Model X on Tesla's business is both good and bad.

In the near term, the Model S has more demand than it can handle anyway, so a Model X just adds complexity to Tesla's production ramp and will likely reduce profitability. Tesla said in its fourth quarter letter to shareholders that it expected its target for a gross profit margin of 30% from Model S by year-end will be partially offset during the introduction of Model X for a few quarters from supply chain and production inefficiencies.

But in the longer term, Model X expands Tesla's offering in the premium auto market to the important crossover class and will boost Tesla's potential gross profit as the model's gross margin improves. Assuming Tesla can ramp Model X deliveries to mirror Model S deliveries, Tesla could essentially double its gross current annual run-rate for $1 billion in gross profit from Model S, achieving a $2 billion annual run-rate for gross profit in late 2016 or early 2017.

While Morgan Stanley Tesla analystAdam Jonas may be dismissed by many as overly optimistic about the electric car-maker, I'll stand by his bullishness for the Model X when he predicts that it will not only outsell the S, but that it is also "ready to feast" upon an unprepared premium SUV marketplace.

The article Tesla Motors, Inc.'s Model X, the Falcon Winged Beast: What You Need to Know originally appeared on Fool.com.

Daniel Sparks owns shares of Tesla Motors. The Motley Fool recommends Tesla Motors. The Motley Fool owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.