SAN FRANCISCO (Reuters) – Tesla Inc on Friday lowered the base price of its Model X SUV to $79,500 and said improving margins were behind the move, which came as the automaker is ramping up production of its new lower-priced Model 3.

Some analysts have been concerned that the launch of the Model 3, whose base price is $35,000, would steer some potential buyers away from the Model X SUV to that lower-priced sedan.

But Chief Executive Elon Musk said earlier this week that demand had not waned for the luxury electric sport-utility vehicle.

“When we launched Model X 75D, it had a low gross margin. As we’ve achieved efficiencies, we are able to lower the price and pass along more value to our customers,” Tesla in a statement on Friday announcing it had lowered the previous $82,500 starting price of the vehicle by $3,000.

The most expensive version of the Model X, the P100D, with fastest acceleration and longer range, costs $145,000.

Musk said on a call with analysts earlier this week that the launch of the Model 3 had not cannibalized Model X sales, and that demand for the Model X as well as the Model S had actually increased with the release of the lower-priced vehicle.

The Model 3, marketed as a car for the masses, begins at $35,000 before incentives, but a longer-range version is priced at $44,000, to compete with high volume luxury sedans such as the Audi A4, BMW 3-series or Mercedes C-Class.

Tesla does not break out gross margins of its individual models, but overall gross margins excluding stock-based compensation and revenue from zero-emission vehicle credits fell to 25 percent in the second quarter from 26.4 percent a year earlier, due to the Model 3 build.