HAWTHORNE, Calif.—Elon Musk on Thursday night unveiled the Model Y compact sport-utility vehicle with an eventual starting price of $39,000, his next big bet for Tesla Inc. to appeal to a wider swath of electric-car buyers.
The Model Y, which Mr. Musk hopes will begin production next year, will have a range of up to 300 miles on a single charge and go from zero to 60 miles an hour in as fast as 3.5 seconds, the chief executive announced at an event near Los Angeles. Mr. Musk has said the crossover vehicle will be about 10% bigger than the Model 3, the compact sedan that shares much of the same vehicle platform of its new sibling to reduce costs at high volume.
Mr. Musk plans to begin delivering the Model Y at a starting price of $47,000 in fall 2020, with more powerful versions costing upward of $60,000. The $39,000 version is expected to roll out in spring 2021, with a range of 230 miles and a zero-to-60 speed of 5.9 seconds.
“It will have the functionality of an SUV but will ride like a sports car,” Mr. Musk said onstage, declaring “of any midsize SUV, it will be the one you want.” He predicted sales of the Model Y will exceed those of Tesla’s three current models combined.
The Model Y is fundamental for Tesla to reach more mainstream buyers because SUVs are one of the fastest-growing vehicle segments in the U.S. and China. It is especially important for Tesla to be competitive in the China market, where customers are gravitating to compact SUVs and government incentives are pushing auto makers to offer more electric vehicles. About one in five cars sold in China are compact SUVs, according to LMC Automotive.
A similar shift is under way in the U.S., with car buyers increasingly buying crossovers—SUVs built on car platforms instead of a truck chassis, allowing for a smoother ride than a traditional SUV, while still giving a higher-seated driving position and a roomer interior than a sedan.
The interior of the Model Y looks similar to that of the Model 3, with a dash free of traditional gauges and buttons, replaced by a large flat screen in the middle. The Model Y has a panoramic glass roof like the sedan but includes a hatchback. Occupants of the Model Y sit higher than in the Model 3.
Mr. Musk surprised the audience when he said the five-seater can be upgraded to accommodate two more seats, giving it the same the number as the bigger Model X SUV, which starts at $88,000. The seat option, available in 2021, will cost $3,000, Mr. Musk said.
The event was held at a hangar converted for the design of Tesla vehicles such as the Model Y. The workspace was cleared out for the party for fans and customers.
Before the event, house music thumped and red lights bathed the crowd. When Mr. Musk’s mother, Maye Musk, entered, she was quickly surrounded by fans seeking selfies and hugs. Her other son, Kimbal, a Tesla board member, towered over the crowd in a cowboy hat. His brother wore all black on stage, save for the Tesla red on his black Nike sneakers.
The Model Y should immediately start giving Tesla an injection of funds. The company began taking orders online following the event, asking for a $2,500 refundable deposit. The unveiling of the Model 3 in 2016 boosted confidence in Tesla in part because the company began accepting $1,000 deposits; reservations eventually swelled to about 500,000.
The new vehicle and Mr. Musk’s ambitious goals to start production in low volumes next year will likely heighten attention on the Silicon Valley company’s ability to pay for all of the big projects on the CEO’s to-do list. He also wants eventually to bring out a pickup truck, a semitrailer truck and a new Roadster sports car.
Mr. Musk has consistently said he doesn’t want Tesla to issue new debt or shares, though the company borrowed $521 million from Chinese lenders to pay for a factory in China that will make the Model Y and Model 3 for the local market.
Tesla’s cash balance, which stood at $3.7 billion at the end of December, likely took a hit this month when the company repaid $920 million in debt.
Mr. Musk has defied skeptics in building a luxury, all-electric car brand, but he has yet to show that he can pump out a car for the masses and consistently turn a profit—let alone introduce a vehicle without all-encompassing drama. The Model 3’s ramp-up from the summer of 2017 through this year has placed the auto maker under intense scrutiny.
The company missed many deadlines to reach production goals of the Model 3 and has since struggled with servicing all of the additional vehicles and lowering the price to $35,000.
Tesla reached the $35,000 milestone a few weeks ago but at the cost of laying off workers, shutting some stores and moving to an online-only sales model. Analysts have worried that the push to lower the starting price amid such drastic measures suggests softening demand for the compact car.
Mr. Musk in January said Model Y sales could be 50% greater than the annual deliveries of Model 3, which he has said could reach 500,000. Tesla delivered a total of about 245,000 vehicles last year after selling more than 100,000 in 2017.
Some analysts are concerned about Tesla’s timeline to begin production of the Model Y early next year. Toni Sacconaghi, an analyst for Stanford C. Bernstein & Co., told clients in a note this week that the production timeline could be delayed by six months or more. “That said, Model Y should enjoy a smoother ramp due to its shared platform with the Model 3 & lower capex per unit capacity,” he wrote.
Write to Tim Higgins at [email protected]