Tesla Closes the Door on a Low-Cost EV

EV maker Tesla dominates the market but its cars remain too expensive for most consumers.

Tesla  (TSLA) – Get Tesla Inc. Report, the leader in the electric-vehicle market, advocates a massive adoption of clean vehicles. But a major obstacle stands in the way: affordability. 

No electric vehicles under $30,000 are currently on the market. According to Kelley Blue Book, new EV prices in June averaged more than $66,000, well above the industry average and more aligned with luxury vehicles than mainstream ones.

This excludes millions of consumers from considering the EV option.

At Tesla the base price of the Model 3, the entry-level sedan, is $46,990, according to its website. Chief Executive Elon Musk had promised that this car would be sold at $30,000 to enable a large number of people to afford it.

A Low-Cost Tesla – Speculation

In 2018, Musk even told YouTuber Marques Brownlee that three years thence, Tesla could build a low-cost car that sold for $25,000.

“I think in order for us to get up to … a 25,000 car, that’s something we can do,” the billionaire entrepreneur said. “But if we work really hard, I think maybe we can do that in about three years.”

During Tesla Battery Day in 2020, Musk rekindled hopes of having an inexpensive Tesla vehicle, which is usually referred as Tesla Model 2.

“Tesla will make a compelling $25,000 electric vehicle that is also fully autonomous,” Musk had promised.

The firm was going to reach this price thanks to its new battery cell and battery manufacturing effort, which could reduce battery costs by more than 50%. 

In September 2021, rumors surfaced that Musk had told Tesla employees that the company would release a Tesla Model 2 in 2023.

No Affordable Tesla Soon

But in January 2022, Musk dashed the hopes of potential car buyers by saying during the fourth-quarter-earnings call: “We’re not currently working on the $25,000 car. At some point we will. We have enough on our plate right now. Too much on our plate, frankly.”

And now a Tesla executive has just closed the door on the prospect of a low-cost Tesla in the near future. 

Martin Viecha, vice president of investor relations, on Sept. 12 said at the Goldman Sachs Tech Conference in San Francisco that to become a high-volume automaker, Tesla needed an expanded portfolio with affordable models long before the launch of its robotaxi service. 

But Viecha added that demand for the Model 3 sedan and the entry-level Model Y SUV/crossover was stronger than expected. And this reduced the need for a new cheaper model.

“Model Y will basically next year become the bestselling vehicle of any kind of all time in the world,” the executive said. “This is an important sales lever that we’ve never touched, but in the future we might be boosting demand in other ways.”

His comments were reported by Business Insider.

On the other hand, Viecha had very good news for Tesla shareholders and fans. 

He explained that the cost of manufacturing a Tesla vehicle has dropped by 57% from 2017. Manufacturing a Tesla currently costs $36,000 compared with $84,000 in 2017, the executive said. 

This drastic drop in costs is due to better vehicle design, which simplified manufacturing, and new factory design.

He added that Tesla’s factory in Fremont, Calif., the company’s first, was not an ideal place to manufacture the cars because it was too expensive. He said that producing vehicles in Shanghai and Berlin, two cities in which Tesla also has production sites, was much cheaper. 

One of Tesla’s goals is to continue to reduce the cost of manufacturing vehicles, Viecha said. The automaker is expected to announce the locations of its next factories by the end of 2022.

Currently, the Fremont plant has capacity to produce 650,000 vehicles a year, the company said during the second-quarter earnings. Tesla produces its four models there — the Model S and Model 3 sedans and Model Y and Model X SUVs. 

In Shanghai, the firm produces the Model 3 and Model Y in a facility that can produce 750,000 vehicles a year. 

Finally, the Tesla factory in Berlin can manufacture more than 250,000 cars a year and the same goes for the Austin factory in Texas. Tesla started production in these two factories this year.

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