Tesla is still promising an ‘affordable EV,’ but it will not be as low-priced as once hoped
Tesla CEO Elon Musk didn’t give many details Tuesday on the “more affordable vehicle” that’s in the works.
Tesla Chief Executive Elon Musk may have given investors what they wanted with promises of a more affordable vehicle coming soon, but those promises may lead to more pain for investors.
While reporting a disappointing first quarter on Tuesday, with a 9% drop in revenue, Tesla also said it would be producing a “more affordable vehicle” ahead of its previously anticipated timeframe, with a launch possibly late this year or early in 2025. Earlier this month, Tesla stock fell after a Reuters report — which Musk denied — that Tesla had killed plans for its lower-cost Model 2, which had been expected to price at $25,000.
On Tuesday, Tesla did not specify a price tag for what it is calling an affordable EV, and noted in its shareholder letter that its “update may result in achieving less cost reduction than previously expected.” So while the $25,000 vehicle does appear to be dead, Tesla is hoping to manufacture a vehicle that it says will be “more affordable” on its current manufacturing lines. (The lowest-cost Tesla today is the Model 3, at a starting price of $39,000.)
That could also lead to a potential manufacturing year of hell, similar to what the company experienced when it was under pressure to make the Model 3. Tesla said Tuesday that by using its current manufacturing process, it would enable growth of over 50% compared with 2023 production, before it invests in new manufacturing methods that it has been planning. Tesla also said its robotaxis will be built on its future “unboxed” manufacturing strategy, which will cut production costs in half.
But it’s worth noting that Tesla also just laid off 10% of its workforce, in the face of growing competition in the EV market.
So with so much competition emerging in EVs, especially from China, how is Tesla going to remain competitive if it cannot even produce a $25,000 vehicle? One big Chinese EV maker, BYD now has a subcompact EV that starts at less than $10,000 in China.
Musk told analysts and retail investors Tuesday that the future of the company is all about artificial intelligence and autonomy, or Full Self-Driving. “If someone doesn’t believe that Tesla is not going to solve autonomy, they should not be an investor in the company,” he said on the call.
While Musk and Co. were touting all the advantages of the latest version of the company’s Full Self-Driving software, it should be noted that the company is now referring to the product as “FSD (Supervised),” with the standard footnote that states active driver supervision is required, and this “does not make the vehicle autonomous.”
When asked for any details about the new model by a Wall Street analyst, Musk was terse, saying he had said all he was going to say on the new vehicle. He later tried to focus more attention on the Aug. 8 unveiling of Tesla’s robotaxi, which he described as a cross between Airbnb and Uber, where some consumers could rent out their Teslas.
But Musk has been making undelivered promises on robotaxis for five years. The recent issues and struggles that companies like Alphabet Inc.’s Waymo and General Motors’s Cruise have had with robotaxis have demonstrated that they are not yet ready for prime time. And Musk’s plans to use a new type of manufacturing system for the robotaxis, which is not even in place yet, is further evidence they are not around the corner.
“Tesla’s FSD is years behind serious competitors” like Cruise and Waymo, “which have been vigorously testing with credible scientific methodologies for years with professional drivers, unlike Tesla,” Vicki Bryan, founder and CEO of the Bond Angle LLC, said in a note to clients on Tuesday.
Yet Musk continues to pin Tesla’s future and hopes for higher profit margins on its leadership role in autonomous driving. Earlier this month, NBC News reported that the two California agencies that regulate robotaxis said Tesla has not applied for any permits to operate a driverless car service. Meanwhile, Tesla’s operating margins were an abysmal 5.5% in the quarter, the lowest in the past five quarters.
So while investors who saw their shares jump 10% in premarket trading Wednesday may feel some great relief, it’s not going to be the panacea they are hoping for. Tesla’s vehicles are still going to be priced higher than their cheapest rivals, and autonomy is not immediately around the corner to boost the company’s margins.