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Amid Intense Chinese EV Rivalry, Tesla Abandons Plans For A Low-Cost Vehicle

Amid Intense Chinese EV Rivalry, Tesla Abandons Plans For A Low-Cost Vehicle
Based on information gleaned from three people with knowledge of the situation and corporate communications obtained by Reuters, Tesla has cancelled the low-cost vehicle that investors had been hoping would propel the company's expansion into a mass-market manufacturer.
According to the insiders, the manufacturer will keep working on self-driving robotaxis using the same small-vehicle platform.
Affordable electric automobiles for the general public is a long-standing objective that Tesla CEO Elon Musk has frequently described as the company's principal mission. This decision marks an abandoning of that mission. His initial "master plan," which opened a new chapter for the business in 2006, aimed for producing luxury models first and then financing a "low cost family car" with the proceeds.
Since then, Musk has made numerous promises to investors and customers about the creation of this car. Following an exclusive Reuters article outlining such intentions, Musk informed investors as late as January that Tesla intended to begin production of the entry-level model at its Texas factory in the second half of 2025.
The Model 3 sedan, which is currently Tesla's least expensive model, costs roughly $39,000 at retail in the US. The now-defunct entry-level car, commonly referred to as the Model 2, was anticipated to have a starting price of approximately $25,000.
Requests for comments from Tesla were not answered. Musk wrote on his social media platform X following the story's publication, saying, "Reuters is lying (again)." He did not point out any particular errors.
After the Reuters article, Tesla shares fell more than 6%, but they partially rebounded following Musk's remark. At the close of business on Friday, the stock was down 3.6%.
Following that, Musk said on X, "Tesla Robotaxi unveil on 8/8," which caused the shares to rise again in after-hours trading.
In the face of quality inspections and scrutiny from watchdogs, Boeing is fighting to manufacture its 737 MAX aircraft.
The dramatic turnabout occurs as Chinese electric vehicle manufacturers, who are flooding the market with vehicles as cheap as $10,000, are posing a serious threat to Tesla's market share globally. The concept of driverless robotaxis has a greater engineering difficulty and regulatory risk, and it may take longer to implement.
Two people, one of whom said the meeting took place in late February, said they were informed of Tesla's plan to abandon the Model 2 at a meeting that was attended by numerous employees.
That person stated, "Elon's directive is to go all in on robotaxi."
The third source confirmed the cancellation and stated that robotaxis will now be created, albeit in considerably less quantities than initially anticipated for the Model 2.
A number of company messages regarding the decision that Reuters examined included one from an anonymous programme manager for the inexpensive car on March 1st, which discussed the project's termination with engineering workers and advised them not to notify suppliers "about programme cancellation."
A fourth source familiar with Tesla's intentions voiced optimism regarding the company's choice to shift its focus from the low-cost automobile approach to robotaxis, which Musk has envisioned as the mobility of the future. The insider warned that depending on the state of the economy, Tesla's product plans might alter once more.
For any carmaker, extracting revenues from entry-level automobiles is a difficult task. However, it is now much harder due of Tesla's tardiness in pursuing the vehicle Musk originally referred to as his goal, as it now confronts much more competition in that price range.
Chinese automakers have jumped ahead with inexpensive EVs, capturing market share, obtaining economies of scale, and providing customers with deals that Western automakers are finding difficult to match. Tesla, on the other hand, spent years creating its highly experimental Cybertruck, an expensive electric pickup.
Musk was tending to his vast empire, which included the social media behemoth X that he acquired in 2022, the rocket manufacturer SpaceX, and the brain-chip developer Neuralink, as Chinese EVs soared to challenge Tesla's dominance. The website, which was formerly known as Twitter, has collapsed under Musk's capricious leadership, losing the majority of its value as the business has lost customers and sponsors.
Musk has set lofty goals for sales growth, and achieving these goals will largely depend on his plans for the reasonably priced Tesla. In 2020, Elon Musk stated that Tesla wanted to sell 20 million cars by 2030, which is double the amount that Toyota, the biggest carmaker in the world, now sells. It's unclear how he'll get there after the Model 2 dies.
The more reasonable, but no less ambitious, projections for Tesla sales made by Wall Street experts have been supported by expectations for a $25,000 car. A Tesla investor relations presentation states that these projections indicate that car sales will increase from 1.8 million to 4.2 million by 2028.
Musk has already faltered on the project. According to Walter Isaacson's biography of the businessman, which was published a year ago, Musk "put a hold on" the plans for the entry-level EV in 2022 because he believed that a Tesla robotaxi would render the vehicle obsolete. The book stated that Musk's advisors persuaded him to stick with the plan.
When talking with suppliers, Tesla referred to the affordable-car project as H422 externally and NV91 internally, according to two of the sources and company communications that Reuters examined.
Those code names were mentioned in communications from the unidentified Tesla programme manager to employees regarding the project's cancellation. "Suppliers should halt all further activities related to H422/NV91," stated a communication delivered on March 1.
According to the sources, they were not fully aware of the factors that led to the project's cancellation.
The management also encouraged the engineering staff members to record their learnings and expressed gratitude for their efforts in a note dated March 1.
“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 mails indicated that the inexpensive automobile project's meetings were postponed. According to the two reports, several engineers have been moved.
Uncertainty surrounds Tesla's robotaxis timeframe and business plan. According to Musk's open predictions, autonomous taxis may eventually outperform human-driven vehicles as the primary means of transportation in the future. Without obtaining complete self-driving capabilities, he has stated that Tesla, the most valuable car company in the world, would be "worth basically zero".
Currently, only extremely restricted, experimental use on public roads has been authorised for self-driving cars by Chinese and American regulators.
Despite Musk's years-long forecasts that an autonomous vehicle was imminent, which contributed to Tesla's skyrocketing valuation, the company has yet to demonstrate that it can manufacture one.
Due to crashes involving its partially automated Full Self-Driving and Autopilot systems, the carmaker is facing both investigations and lawsuits. Tesla has attributed the collisions to careless drivers.
The issues with Tesla's Autopilot are only one of many issues that have come under investigation. After Reuters revealed last year that Tesla had tampered with the in-dash range metres in its cars to provide optimistic predictions, the automaker was subject to an additional examination into the driving-range estimates of its vehicles. In December, Reuters revealed that the carmaker had long known that its suspension and steering parts were substandard, but it attributed their persistent failures to "driver abuse."
According to polls and experts, Musk's polarising public remarks and tilt towards right-wing politics have hurt Tesla's reputation as a climate-friendly innovation and turned off some potential Tesla customers.
On Tuesday, the carmaker revealed a 13% increase in deliveries over the previous year, shortly after its main Chinese rival, BYD, revealed a 13% decrease. Following a decline of over 40% since last July, Tesla's shares fell 5% in response to the announcement, resulting in a $400 billion market value loss.
Even still, Tesla's $545 billion market capitalization exceeds the total value of the next three most valuable automakers: Mercedes-Benz, Porsche, and Toyota.
Rather than its current sales and profitability, Tesla's stock valuation has historically been determined by predictions for mass-market sales and driverless cars in the future.
The cancellation of the inexpensive car project comes amid a flurry of activity for established automakers like Tesla, as well as a slowdown in the growth of EV demand in Europe and the US and fierce competition in China.
According to the company's estimation, if Tesla had proceeded with the low-cost vehicle, it would not have hit the market until the later part of 2025. However, there are already a lot of interesting models in the entry-level EV market from BYD and numerous other Chinese manufacturers.
Part of the reason Tesla is late to the market is due to a crucial choice made by Musk. 2020 saw Tesla release the highly experimental Cybertruck in lieu of a more reasonably priced vehicle, following the success of its crossover, the Model Y.
In 2019, Musk showed a prototype of the truck, which is angular and covered in stainless steel, and estimated that it would cost roughly $40,000. The truck was ultimately released last year, but the base model won't be accessible until 2025, when it will cost roughly $61,000.
Additionally, the business has had trouble resolving manufacturing issues, especially pertaining to the truck's innovative battery technology. Musk intends to sell the car in large quantities, but he issued a warning to investors last autumn about the "enormous challenges" of increasing manufacturing and turning a profit.
"We dug our own grave with the Cybertruck," he said.
In the same time frame, BYD's sales of electric vehicles in China increased from roughly 130,000 to over 1.5 million, and that's without including in the company's rapidly expanding exports or its booming plug-in hybrid business.
Many low- and mid-range models are now available from BYD, such as the Seagull hatchback, which retails for less than $10,000. The Chinese automaker now intends to export the vehicle for more than double that amount, which is still less than the goal Tesla had set for the affordable vehicle it intended to produce.

Christopher J. Mitchell

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