Tesla Inc: The Model S Is Better Than the Model 3

By Daniel Sparks Markets Fool.com

Electric-car maker Tesla (NASDAQ: TSLA) is getting aggressive about informing potential customers that its upcoming Model 3 is not a third version of its Tesla vehicles, but rather a smaller, more affordable version of its pricier Model S sedan, with fewer features and less range.

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Tesla CEO Elon Musk first started pushing this anti-selling of Model 3 late last month, when he tweeted, "Am noticing that many people think Model 3 is the 'next version' of a Tesla, like iPhone 2 vs 3. This is not true." In a follow-up tweet, Musk admitted the Model 3 name could cause confusion: "I was a dumb idiot and didn't realize at the time that it would cause confusion."

Model S. Image source: Tesla.

But now Tesla is back again with a more formalized approach to clarifying any confusion about how the Model S and Model 3 differ. In a new company blog post, titled "Model S or Model 3," Tesla details the different value propositions for the two vehicles. Here are some highlights from the blog post.

Model S is more advanced than Model 3

"Our higher priced premium models still include the most advanced technology and the best driving experience we have to offer," reads the blog post. Tesla goes on to explain that Model S is still a hit with customers. Citing a recent Consumer Reports survey, Tesla said 94% of Model S owners would buy the vehicle again.

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Key differentiating features for the Model S compared to the Model 3 include:

It has a 5-star safety rating and will continue to be our flagship Modelwith more range, more acceleration, more power, more passenger and cargo room, more displays (two) and more customization choices. With Ludicrous+, ModelS has a zero-to-60 time of 2.28 seconds as measured by Motor Trend, making it the fastest accelerating production car in the world. ModelS will also continue to be the longest-range vehicle we offer, capable of a landmark 335 miles on a single charge, meaning you can travel from Los Angeles to San Francisco nonstop.

So, what does this leave for the Model 3? Ultimately, the biggest value proposition for the Model 3 is its more affordable price tag. Model 3 will start at $35,000 while Model S starts at $74,500 (Tesla is discontinuing its $68,000 60 kWh Model S on April 16). Apart from Model 3's lower price tag, Model S has Model 3 beat: The Model 3 is smaller, simpler, and will have fewer options than Model S, Tesla explained in Thursday's blog post. In addition, the Model 3's starting driving range of 215 miles is well below the 259-mile starting driving range of the Model S.

Model 3. Image source: Tesla.

Safety is still a top priority for Model 3

When it comes to safety, however, Tesla won't be compromising. The self-driving hardware will come standard in Model 3, just as it does in Model S, Tesla explained on Thursday. Tesla says over-the-air updates will eventually enable all Tesla vehicles, including Model 3, with this October-released hardware to achieve a safety level that is "substantially" greater than what a human driver is capable of.

Tesla's anti-selling of Model 3 in favor of Model S comes as Model S sales growth is slowing. In 2016, Model S deliveries increased only 1% compared to 2015. And in Tesla's first quarter of 2017, Model S deliveries were only 8% year over year, while deliveries of Tesla's newer Model X SUV nearly quadrupled.

Tesla's need to clarify the differences between Model S and Model 3 also comes as the company's planned Model 3 launch nears. Tesla intends to begin Model 3 production in July.

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Daniel Sparksowns shares of Tesla. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has adisclosure policy.