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Why Elon Musk Would Kill Tesla’s $25,000 Model 2 – The Autopian

Why Elon Musk Would Kill Tesla's $25,000 Model 2 - The Autopian

Every day I try to thank God for the many blessings he’s given me, specifically my wonderful family and friends. Pretty high up there on the list of things I’m grateful for is that I am not the CEO of a car company. It’s a tough job and I probably love cars too much to be responsible for making decisions at a publically traded automobile-producing entity. It’s much easier to just second-guess their decisions and then borrow their cars.

I say this because I’ve got to talk about Elon Musk due to this this Reuters report that says Tesla killed its affordable car program. You know, the one that CEO Elon Musk said would happen in three years way back in 2020, would be mostly autonomous and would cost under $25,000? Remember that?

Vidframe Min Top

Vidframe Min Bottom

Obviously, that didn’t happen and, instead, it seems like a lot of Tesla’s talent has gone into making the Cybertruck. As recently as earlier this year Musk was talking about the cheap car, so the Reuters report is an interesting surprise. Here’s the key part of the article:

Two sources said they learned of Tesla’s decision to scrap the Model 2 in a meeting attended by scores of employees, with one of them saying the gathering happened in late February.

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

The third source 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.

As the report also notes, this was long a dream of Elon Musk. He was supposed to sell expensive EVs to part of the market to fund the development of a cheaper EV for everyone else, thus making Tesla the biggest carmaker in the world.

Musk has responded to the story by saying Reuters is lying without denying any specific part of the story, which makes this more interesting. I don’t think Reuters is lying and it would be weird for a bunch of sources to suddenly lie to them. It’s possible there’s some confusion or misinterpretation here. I don’t know, but there a few reasons why Tesla might at least delay the $25,000 car and they range from the reasonable to the insane.

The Sensible Reason Why Musk Might Kill The $25,000 Car

Byd Seagull

There aren’t big margins in $25,000 cars. Cheap cars are a good way to earn customers and a bad way to make a lot of money. We all love the cheap Ford Maverick Hybrid XL, but the profits are razor-thin on a product like that. While cheap EVs are the way forward for increasing EV market share, it may not be the best way forward for Tesla.


If the dream was a cheap, nice EV, well… the BYD Seagull is $10k in China and about $20k everywhere else. As Morgan Stanley analyst Adam Jonas wrote in response to the story:

“… [O]ne could argue that there are enough strong players in China (with enough unused capacity) to have already accomplished this objective. What more could Tesla bring? Assuming the Model 2 was the ‘best EV’ money could buy for under $25k… how long would it take before Chinese rivals caught up? A couple years?

It’s a fair point! Mission accomplished. Focus on finishing the Roadster, updating the Model Y, and introducing cars that might actually make money. Ford is already pushing ahead with ex-Tesla folks to build its cheap car, so even with trade barriers to China, the company might end up in a situation where Tesla has real competition.

The Sad Reason Why Musk Might Kill The $25,000 Car

Cybertruck 72
Source: Tesla

Given the known timing of when Musk was hoping to deliver the Model 2, is it possible that Musk shifted too many resources to build the Cybertruck? The Reuters article makes a reference to it:

If Tesla had moved forward with the low-cost car, it wouldn’t have arrived on the market until the latter half of 2025, by the company’s estimate. But the entry-level EV segment is already crowded with compelling models from BYD and many other Chinese brands.

Tesla is late to the segment in part because of a pivotal decision by Musk. In 2020, after releasing its hit crossover, the Model Y, Tesla focused on the highly experimental Cybertruck instead of an affordable car.

Musk unveiled a prototype of the angular, stainless steel-clad truck in 2019 and predicted a starting price of about $40,000. The vehicle finally arrived last year, but the lowest price version of the truck won’t be available until 2025, at a price of about $61,000.

The timing does make sense. It doesn’t mean that the car has to be dead, but similar to the reasoning above, maybe Musk is too late and it’s better to do something else.

The Kinda Insane Reason Why Musk Might Kill The $25,000 Car

Cruise Origin


At some point, there will be more self-driving cars. The tech will get close enough that enough of us will be comfortable with it. Regulators will slowly, begrudgingly create a framework to make it work. I don’t think it’ll be tomorrow. I don’t think it’ll be five years from now. Just… eventually.

There’s another hint in the piece above that what Musk thinks is that he’s so close to self-driving being a thing, and that it’s the thing that makes the company super valuable, that he’s going to just chuck the cheap car part of the platform and focus fully on robotaxis (Ford is, for its part, also going to make its sub-25k the base for a robotaxi).

Tesla’s timeline and business model for robotaxis remain unclear. Musk has publicly predicted a future of mobility in which driverless taxis could eventually become a more common mode of transport than human-driven cars. He has said Tesla, the world’s most valuable automaker, would be “worth basically zero” without achieving full self-driving capability.

It’s possible Musk’s team had a huge breakthrough we don’t know about and it’ll all be here soon and Musk will be the smart one, again. Tesla-watcher/investor Sawyer Merritt has a theory along these lines, that the cheap car isn’t canceled, just that the robotaxi part of it is taking precedence:

Musk responded to the above tweet with the big eyes emoji, so maybe?


The Truly Insane Reason Why Musk Might Kill The $25,000 Car

What if Tesla’s business isn’t really cars? I know this is a wild statement since that’s a big chunk of the company’s value, but Musk is out there working on AI and robots and flamethrowers and tunnels. There are fundamental limitations to the amount of money to be made in the car business and it’s possible that Musk would rather pivot to the next thing rather than focus on the arduous, slow, and kind of boring work of making cars now that he’s got to compete with BYD, and. Xiaomi and a bunch of other companies.

Jonas, the analyst mentioned above, references this in his note:

“While we do not expect Tesla to ‘exit’ the auto business any time soon, we do believe the company’s scientific endeavors can and will, over time, expand far beyond the automotive paradigm. Perhaps the unexpected slowdown in the global EV market has accelerated this change. Many investors may not be prepared for the change.”

What I think Jonas is trying to say here is that it might suck to own Tesla stock for a while as Tesla concedes market share to everyone else while trying to get AI to work, or whatever. Again, it’s a truly insane reason, but Musk has been successful by placing a lot of seemingly dumb bets and pulling most of them off most of the time.