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Elon Musk really wants to remind you that Tesla’s new Model 3 is not as good as the Model S

It has fewer bells and whistles so that it’s easier to manufacture.

Asa Mathat

Tesla started off the year with a relatively good quarter, delivering more than 25,000 cars and doubling its revenue year over year. The company saw a wider loss than expected, however, and attributed it to operating costs of SolarCity — which Tesla acquired (somewhat controversially) late last year.

But Tesla CEO Elon Musk is really hung up on one thing in particular: Confusion about its forthcoming Model 3.

“We want to be super clear, the Model 3 is not version 3 of our car,” Musk said on the earnings call today. “The Model 3 is a smaller, more affordable version of the Model S with fewer features.”

In other words, the Model 3 isn’t an upgrade from the Model S, even though the cars have the same level of technology.

The letter to investors reads:

“Model S will always have more range, more acceleration, more power, more passenger cargo room, more displays (two), and more customization choices, and Model S, X and 3 will all have equivalent Autopilot functionality. We will continue to clearly communicate these distinctions to avoid any misperceptions.”

“If you want to upgrade you should buy the latest Model S,” he said on the call.

But that might prove to be beneficial for the company as it ramps up to begin production on its first-ever mass-market vehicle.

“We’ve gone through great pains with the Model 3 to design it for manufacturing and to not have all sorts of bells and whistles and special features,” he said. “[Model] X became a technology bandwagon of every cool thing you can imagine all at once. That is a terrible strategy; you want to start off simple and add things over time. That was some hubris, we were a little over confident there. With Model 3 it’s the opposite. It’s designed to be easy to make. We got a much better supply chain in place. We didn’t have that with the Model X or S. As far as we know there are no issues. That strategy appears to be paying off.”

The company says it’s on track to begin production on the Model 3 in July, and expects the factories to be able to produce 5,000 per week “at some point in 2017.” That production ramp will go up to 10,000 vehicles per week “at some point in 2018.”

A lot is riding on the company’s ability to meet those production levels. When the Model 3 was unveiled, Tesla brought in close to 400,000 reservations for the sedan. According to Musk, demand for the Model 3 grows every week, despite the company’s efforts to “anti-sell” it. He says Tesla employees actually suggest buying a Model S when customers try to buy Model 3 — and the company has done no advertising around it.

After delivering more than 25,000 cars in the first quarter of 2017, Tesla beat Wall Street expectations with $2.7 billion in revenue, compared to analysts’ forecast of $2.6 billion.

Tesla reported a loss of $1.33 per share, much wider than the expected adjusted loss of $0.82 per share. In its investor letter, the company points out that this is the first full quarter of reporting since SolarCity merged with Tesla.

“Excluding these items, vehicle-related operating expenses increased only 8% sequentially despite significant Model 3 vehicle development progress and expansion of our customer support infrastructure,” the letter read.

The company still expects to deliver 47,000 to 50,000 vehicles in the first half of 2017. That leaves a little less than 25,000 cars that need to be delivered in the second quarter.

The company is notably not giving guidance on deliveries for the second half, given the uncertainty of Model 3 production, but Musk said he still expects to meet his ambitious deadline of producing a million cars by 2020.

Tesla also plans to add 100 additional retail locations in preparation for the launch of the Model 3, which will introduce a new demographic of owners to the company.


This article originally appeared on Recode.net.

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