Elon Musk broke the news last night that Tesla was dropping the 75 kWh Model S/X

Since the remaining 100 kWh options are currently $15k-18k more than the 75D’s, that would greatly decrease an already small niche of buyers that can afford the Model S and Model X. This is an atypical move for Tesla and there is likely some financial motivation behind the discontinuation.

The most logical reasoning for the discontinuation is that Tesla is taking down its 75 kWh pack line to upgrade to a cheaper/more efficient architecture that can handle the V3 Supercharger. Since the 100D’s are Tesla’s highest margin vehicles, Tesla will be able to decrease their cost substantially because Tesla no longer has to cover the lower margin 75D’s in its sales mix.

While the 75 line is down, Tesla can crank out as many 100 kWh packs so that they can keep manufacturing their highest margin vehicles when they take down the 100-pack line for its upgrades.

Tesla can then reintroduce "Standard Range" S/X’s with higher ranges than the current 75D’s. Tesla can charge the same price for the SR than it did for the prior 75D because the buyer gets more range for "free" and Tesla gets better margins on their lower-end S/X’s.

When the SR is introduced, Tesla can upgrade the 100 kWh pack line while it continues to manufacture high-margin 100D’s with the inventory 100D packs that it produced during the 75D discontinuation. When the upgrades are complete, Tesla can reintroduce an upgraded "Long Range" S/X and charge the pre-discounted 100D price because the LR vehicles will have longer range and higher charge speeds.

With the old price-point, the new LR’s would then be able to again offset the lower margin SR’s.

When the next tax credit rollback occurs, Tesla will again have healthy margins on its flagships that will again enable it to drop the price of its vehicles again to absorb the impact.

What do you think about this move by Tesla? We'd also like to know your thoughts surrounding this analysis. Let us know in the comment section below.