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Here's Why the Model X Will Be Bigger Than the Model S

Stocks in this article: TSLA

Updated from 11:13 a.m. to include thoughts from Morgan Stanley analyst in the fourth paragraph.

NEW YORK (TheStreet) -- Tesla Motors (TSLA) future lies in its ability to meet demand for the Model S, the Model X and ultimately what comes after it. If Elon Musk has his way, the Model X will be bigger than the Model S.

In Tesla's shareholder letter, the company noted it expects "to have production design Model X prototypes on the road by end of year and begin volume deliveries to customers in the spring of 2015."

During the conference call, Musk noted that while Tesla has done no advertising for the Model X, reservations for the upcoming sports-utility-vehicle have been staggering, equating it to like fish jumping in the boat.

Morgan Stanley analyst Adam Jonas noted it was surprising how strong the reservation balance Tesla provided was, due largely to the Model X. "We agree with Tesla management that demand for the Model X could materially surpass that of the Model S," Jonas wrote in a note. The surprisingly strong $160m reservation balance was driven in large part by pre orders for the X."

An early view of the Model X prototype.

"I think the biggest thing we can attribute that sort of growth to is that the Model X demand is very high," Musk said on the call. "But there's a number -- obviously, we don't disclose it, but even though there's 0 marketing for the Model X -- essentially, it's like if you're going fishing, it's like the fish are jumping in the boat. We're not actually trying to sell the Model X at all, but demand seems to be remarkably high. And we're seeing a steady accumulation of Model X deposits."

The Model X is going to be huge for the company, as it moves from just selling a premium luxury sedan, to become a full fledged automaker, and potentially more with its planned giga-factory. Later in the call, Musk noted the X could be bigger than the S, which is astounding considering it's possible the X could wind up costing more than the S, well all options are added. "[I]n relative terms, it appears that the X will see at least as much a demand as the S," Musk said. "And if I was to guess, and this is just a guess, I think the X demand may exceed the S demand. I mean, this is very speculative, so don't hold me to it, but that's my best guess. I think X demand will exceed S demand."

It's a little concerning that Tesla has pushed back delivery of the Model X, as JPMorgan analyst Ryan Brinkman noted in a research report ("TSLA updated that its Model X is not expected to launch until the spring of 2015 (vs. earlier guidance for early 2014, which had slipped most recently to late 2014)." However, Musk is a perfectionist, and keeps tinkering with the design, noting he's making subtle changes to the design of the SUV, to get it just right.

Aside from the incredible demand already seen for the Model X, it's possible the new truck could have better gross margins than the Model S, something that's a concern. I referenced Tesla's gross margins, excluding Zero Emission Vehicle (ZEV) credits in my spot on CNBC earlier today.

With the Model X, it looks like Tesla has another hit on its hands, before it's even out. Now, all it has to do is just make the damn thing.

--Written by Chris Ciaccia in New York

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