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Musk Cancels Low-Cost EV Plans Amid Tough China Competition

Musk Cancels Low-Cost EV Plans Amid Tough China Competition

Tesla chief Elon Musk is said to have scrapped work on a low-cost electric vehicle (EV) he long promised investors amid increasing competition in the affordable space from Chinese carmakers.

The now-defunct entry-level vehicle, sometimes described as the Model 2, was expected to start at about $25,000 and drive Tesla’s growth into a mass-market automaker.

But the US carmaker ended up delaying plans to develop the car as it chose to first focus on the highly experimental electric pickup Cybertruck.

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In the years it took Tesla to work on the pricey Cybertruck, Chinese EV-makers such as BYD flooded the market with cars priced as low as $10,000 and less, making it tougher for Musk to develop the low-cost car.

BYD, for instance, saw its electric-vehicle sales soar in China during the period, growing from about 130,000 to more than 1.5 million, not including its thriving business in plug-in hybrids or its fast-growing exports.

If Tesla had moved forward with the low-cost car now, it wouldn’t have arrived on the market until the latter half of 2025, by the company’s estimate.

Tesla now plans to develop self-driving robotaxis on the same small-vehicle platform, sources familiar with the matter told Reuters.

The carmaker did not respond to Reuters’ requests for comment. After the story was published, Musk posted on his social media site X that “Reuters is lying (again).” He did not identify any specific inaccuracies.

Tesla shares tumbled more than 6% following the report of the cancelled plans but recovered some of the loss after Musk’s post. The stock was down 3.6% at Friday’s market close.

Shortly afterward, Musk posted on X: “Tesla Robotaxi unveil on 8/8,” sending shares back up in after-hours trading.

‘All in on robotaxi’

Two sources familiar with Musk’s plan to cancel Model 2 said they learned of the decision in a meeting attended by scores of employees. One of them said the gathering happened in late February.

“Elon’s directive is to go all in on robotaxi,” that person said.

A third source also confirmed the cancellation and said new plans call for robotaxis to be produced, but in much lower volumes than had been projected for the Model 2.

Several company messages reviewed by Reuters about the decision included one on March 1 from an unnamed program manager for the affordable car discussing the project’s demise with engineering staff and advising them to hold off on telling suppliers “about program cancellation.”

A fourth person with knowledge of Tesla’s plans expressed optimism about the decision to pivot away from the cheap-car strategy in favour of robotaxis, a segment Musk has envisioned as the future of mobility. The source cautioned that Tesla’s product plans could change again based on economic conditions.

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‘Halt all further activities’

Tesla called the affordable-car project NV91 internally and H422 externally when discussing it with suppliers, according to two of the sources and company messages reviewed by Reuters.

Messages from the unnamed Tesla program manager to staffers referenced those code names in discussing the project’s termination. One of those messages sent March 1 said that “suppliers should halt all further activities related to H422/NV91.”

The sources said they did not know all the reasons behind the decision to kill the project.

In another March 1 message, the manager thanked engineering staffers for their efforts and urged them to document what they had learned.

“I’d like to thank everyone for all your hard work and dedication to pushing boundaries and executing the best design possible given the aggressive constraints we had to work within,” the message said. “We would not want all our hard work to go to waste, so it’s important that we tie things off and document things properly.”

The messages showed meetings on the affordable-car project being canceled. The two sources said some engineers have been reassigned.

Tesla’s key to massive growth

The decision represents an abandonment of a longstanding goal that Tesla chief Elon Musk has often characterised as its primary mission: affordable electric cars for the masses.

Musk’s first “master plan” for the company in 2006 called for manufacturing luxury models first, then using the profits to finance a “low cost family car.”

Musk has since repeatedly promised such a vehicle to investors and consumers. As recently as January, Musk told investors that Tesla planned to start production of the affordable model at its Texas factory in the second half of 2025.

Tesla’s stock value has also long been based on future expectations for mass-market sales rather than its current sales and profits.

Furthermore, plans for the affordable Tesla have also been seen as key to delivering on Musk’s stratospheric ambitions for sales growth.

Musk said in 2020 that Tesla aspired by 2030 to sell 20 million vehicles – twice as many as the world’s largest automaker, Toyota, sells today. With the death of the Model 2, it’s unclear how he’ll get there.

Expectations for a $25,000 vehicle have underpinned Wall Street analysts’ more modest, but still ambitious, forecasts for Tesla sales. Those forecasts, according to a Tesla investor-relations document, call for vehicle sales rising to 4.2 million by 2028 from 1.8 million last year.

The automaker reported an 8% year-over-year drop in deliveries on Tuesday, just after its chief Chinese competitor, BYD, reported a 13% gain.

Tesla shares dropped 5% on the news, deepening a slide of more than 40% since last July, amounting to a loss of about $400 billion in market value.

  • Reuters, with additional editing by Vishakha Saxena

Also read:

BYD’s EV Victory Over Tesla May Be Short-Lived As Sales Cool

Tesla-BYD Lock Horns in China With Deep Discounts, Incentives

Smaller Profit Margins Help China’s BYD Steal Tesla’s EV Crown

China EV Firms Can Destroy Rivals Without Trade Barriers: Musk

Musk’s Tesla Video Touting Self-Driving ‘Was Staged’ – Reuters

Tesla Buyers Bailing Because of Musk, the ‘Troll’ – CNET

Tesla is S&P 500’s Worst Performing Stock of 2024 – Quartz

‘Unhinged’ Musk ‘Driving Away Potential Tesla Buyers’ – Reuters

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]