MelvinLee, I am not sure you are seeing this from all sides. I'm sure their management spent a lot of time agonizing about the best way to go forward; these are not incompetent people and they are doing their best to achieve whichever goal it is they are trying to achieve (some combination of tesla surviving, growing, and making the world better...we'll never know what they hold most dear)
Limited resources and limited budget means it was likely an either or. Update S or release model 3. If that is the case, I tend to side with the management. The model 3 really is the killer app right now. To give that a pass to puff up model S sales for maybe another year or two just doesn't seem worth it. The margins on model S were not sustainable forever, eventually there would be enough players in the market they'd come down, and, if you believe Tesla's mission...the model 3 made a MUCH bigger impact in the industry and got WAY more EVs in peoples hands, so from the perspective I again tend to side with management. If they had handicapped the 3 to support S sales...I'm pretty sure the company would be out of money right now as it would not be selling as well as it has been.
If your take is right, sounds like you are more interested in milking money out of people whereas it sounds like Tesla forwent some easy profit to move things forward as far as EVs went...in which case, I'll side with Tesla. Alternately, maybe Tesla can do basic math and figured out they had to grow fast enough that they can afford all that capex (i.e. debt) in order to be viable in the next couple of years. In that case, sounds like Tesla did the right thing.
Basically, what I'm trying to say, is that yes, they could have made a couple of extra bucks with updating the model S first but chose not to for what are likely some tough but real reasons. Profit margin is nice, but a large piece of a small pie is still a small piece (lets assume for the next 30 seconds the payback in profit is coming with the Y...if that fails, we can revisit if they made the right decision!). Besides, the new raven is starting to correct things and Plaid will put them back on top, (but at more typical automotive margin. That's about a year or so of not being undeniably the king of the hill in all aspects, 'normal' auto companies go through that with every model every 3 or 4 years! Cars are a hard business.