Tesla Gives Up its Short-Range Model S image

Tesla announced it gave up its plan to manufacture the 40 kWh Model S sedan, due to lack of demand.

The Model S sedan, with a 40-kilowatt hour battery, will no longer be manufactured due to lack of demand, according to the automaker. This means that the cheapest model offered by Tesla, for which it received a $465 million U.S. Department of Energy loan, will cost over $60,000, after a $7,500 federal tax credit.

“While a blow to mass-market EV enthusiasts and somewhat validating a smaller addressable market, we think consolidating the battery configurations that reflect true demand is the right thing to do,” said Adam Jonas, an analyst at Morgan Stanley Research, in a Monday report.

Tesla will now focus on extended electric vehicle range, as it is believed that the main reason why customers avoid EVs is the range anxiety. The automaker is confident that customers are willing to pay more to be able to travel longer distances. Only 4% of the Model S customers chose the 40 kWh battery, which is the smallest among the three versions offered by the automaker. From now, the smallest battery will be the longer-range 60 kWh one, with a range of 230 miles and a price of $62,400 after a $7,500 federal tax credit.

“I think it just speaks to the type of buyer who truly wants an electric vehicle,” said Alec Gutierrez, senior analyst at Kelley Blue Book, in a telephone interview. “For your typical mainstream buyer shopping for a Camry or grocery hauler, the electric vehicle value proposition still isn’t there.”