No. They don't 'need to do' anything of the sort. Tesla originally sought to sell perhaps 15,000 cars per year worldwide of the Model S. Through 2016 they have sold better than the equivalent of 11 years of cars at that rate. In only 4-1/2 years. For a car with an 8-year product cycle. Every Model S sold from this point forward is pure gravy to their bottom line. And they have another 3-1/2 years to collect on that gravy.
The Model S is simply KILLING the 'competition' from Mercedes-Benz S-Class, BMW 7-Series, AUDI A8, and every other flagship ICE vehicle from traditional automobile manufacturers in the U.S. In cumulative sales of 2013 through present, Tesla has outsold them ALL. And the S-Class only managed to reclaim its formerly perennial #1 spot in class once -- in 2014 -- while being in second place every other full calendar year since the Model S was launched. During 2016, the Model S outsold the Porsche Panamera by 5.42:1! In fact, the Model S outsold Panamera, 7-Series, and A8 -- COMBINED -- in the U.S. during 2016.
This constant supposition that Tesla has to do something to 'protect' the position of the Model S from the Model ☰ is completely out of line. Elon Musk has said since at least early 2013 that he expected the Tesla Generation III vehicle to reach annual sales of 500,000 units. The intention has always be that Model ☰ would outsell Model S by a wide, wide margin. If people truly wanted the trappings of 'luxury' more than anything else, then the Model S never would have got off the ground to begin with... Saying Model S should 'match' the others in 'luxury', when it is kicking their butts at every turn misses the point. Tesla's focus is already correct. The BMW 3-Series outsells the 7-Series, the AUDI A4 outsells the A8, and the Mercedes-Benz C-Class outsells the S-Class. That is as it should be.
So why do you believe the Model ☰ represents a threat to the Model S?
Tesla today is killing the competition for it's car class because the S and X are unicorns. If you want the tech, it's only available at that price. Period.
Polls have shown that over 50% of Model S owners never considered buying a car worth more than $60K and they got upsold into a Model S because it was the only thing available with that tech. I'm one of those people. When I started shopping for a car, I was looking at cars in the $30-$40K range and I would never consider buying any of the cars the Model S competes with. Even if I was a billionaire I would never buy a Mercedes, BMW, or Porsche. They aren't worth the extra premium over decently equipped mainstream cars.
Most of the demographic who were upsold into a Model S probably would go for a M3 when it's available. Those who are used to dropping $100K on a car may continue to look at the Model S, but that's a very rarefied market which is why a medium production car like the S has dominated that market niche.
At this time, there are very few features the S offers over the 3:
1) It has a hatch
2) It will probably have a bit more range
3) It's a little larger (about 10%)
4) The Performance model, which most people cross shopping an S and 3 will probably have better performance than the P Model 3
The Model S sales will probably keep up for the first year as it will be impossible to get a Model 3 if you aren't already on the waiting list, but once they catch up with the waiting list and the wait for an M3 will be about the same as an MS, quite a few people will not find the 2X price of the S worth the extra money and if the S doesn't have something worth the extra cost, sales of the S will collapse to a point it won't be worth it to keep it in production.
If Tesla can't sell around 50K Ss a year, they can make far more profit converting the S production line to making Model 3s. I think they will have to lower the price, which I think they can do. With GF built batteries and incorporating some lessons learned from the M3 production line, they can probably get the S base price down to around $45K and a fully loaded PxxxD around $100K. That will stimulate S sales and keep it viable. They may have to cut the profit margin a bit too, but 1 year into 3 production they can probably afford to do that and still be profitable.
One of the biggest criticisms from people familiar with luxury sedans is how "cheap" and spartan the S interior is. Some people like it, but many luxury car buyers don't. With a bit of an interior refresh and a price tag more on par with Lincolns and Cadillacs, the S will remain competitive. Otherwise it will be driven out of production by competition from it's much cheaper sibling.
People blinded by the awesomeness of Tesla don't see it, but sales of the S depend heavily on drawing in new customers. They can't keep selling upgrades to the more well heeled of their existing customers. That isn't viable. I probably have some similarity to the next generation of Tesla customer. I'm not a car guy, I was looking for a decent ICE or possibly hybrid, and I stumbled into the Tesla universe and here I am.
All I wanted was a car that would work with my long legs, got 20%+ better mileage than my Buick, had at least the same acceleration as my Buick, and had decent cargo space. I thought in 24 years it should be easy to find something, but it wasn't. I only found 1 car that met my criteria and I bought it. I research more than most people, but introduce ICE buyers to Tesla's tech and they will buy.
If the Model 3 was available when I was shopping and the S had a starting price around $10 - $15K more, I would have seriously thought about an S. But double the starting price and the S would be off the table without consideration.
