Better late than never? Tesla has spent years debating whether to add a more affordable EV to its existing line-up. It’s finally moving forward and, despite yet another delay, will finally add the vehicle to its line-up in June. Details have yet to be released but it’s expected to be a stripped-down version of Model Y starting at less than $30,000 — with a low-priced take on the Model 3 likely to follow. But will this draw in entirely new buyers or cannibalize sales of Tesla’s existing line-up? More from Headlight.News.
Tesla abandoned plans for a ground-up new EV often referred to as the Model 2.
We’ll finally get to see the long-awaited entry-level Tesla go into production in June, the automaker confirmed, though it may not be quite the product those who closely follow the Texas-based EV company had long expected.
Tesla CEO Elon Musk has long and openly debated, seemingly with himself, the benefits – and drawbacks – of coming up with an entry model. But with other automakers already undercutting Tesla’s current base packages – which start at more than $44,000 for a Model 3 sedan – it has become an increasingly critical necessity, analysts said. That’s all the more so in the key Chinese market where aggressive domestic brands like BYD and Geely are offering some all-electric products starting at barely $10,000.
While there had been expectations Tesla would come up with an entirely new platform for its entry model, it instead is going with a stripped-down and slightly smaller version of the Model Y SUV. But that’s raising concerns it could draw sales away from Model Y and the Model 3 sedan, rather than generating incremental volume.
The latest plan
The teaser image clearly indicated the first “affordable” Tesla will be based on the Model Y.
Recent reports indicated Tesla would delay by several months the launch of its new entry EV. That fits with what the company has now announced, an expected first-quarter launch now pushed back to sometime in June.
The timing shift appears to have been necessary to let Tesla jointly tool up for the new EV as well as the update of the Model Y, today its best-selling product line.
Often referred to among insiders and Tesla followers as either the Model Q or Model 2, it now appears the carmaker abandoned plans to deliver a ground-up product developed to maximize cost-cutting measures. Instead, hinted Tesla, the “affordable model will “resemble in form and shape the cars that we currently make.”
More than one “affordable” model is coming
A second cheap Tesla apparently will be based off the Model 3 sedan.
There actually could be two new entry “models”, based on what Tesla’s VP of vehicle engineering, Lars Moravy, said during the Tesla earnings call. So, we might no need to expect down-market versions of both Model Y and Model 3.
Whatever follows, Moravy suggested that the company couldn’t go as far as it might have liked. The “flexibility of what we can do within the form factor and the design of it is really limited to what we can do in our existing lines rather than build new ones.” The plural of “models” in Moravy’s quote also suggests there could be more than one entry-level EV, perhaps one based on the Model 3 and one based on the Model Y.
More specifically, it will be a slightly smaller, stripped-down take on the Model Y, plans for a Model 2 having been abandoned for unspecified reasons. Some sources indicate Tesla felt it could do better at cutting costs by improving its economies of scale, sharing as many parts and components as possible with the midsize SUV.
More Tesla News
- Musk Returning to Focus on Tesla
- Tesla Q1 Earnings Fall 70%
- Tesla Launches “Juniper,” the Updated Model Y
Pricing – and profits
Being able to produce the new model at an existing Tesla plant will help reduce costs.
There’s a widespread consensus that today’s EVs, with rare exception, are simply too expensive to develop a broad mainstream market. Some new offerings, such as the Chevrolet Equinox EV, are starting to drop down to around $30,000 – before factoring in options and incentives, including federal tax credits of up to $7,500.
One big question about what now is being widely referred to as Model Q is whether it will go far enough to win over buyers. There’d been hope among investors and analysts that Tesla would deliver a base product starting closer to $25,000, but the speculation now is that the new model will be a bit more expensive.
After listening to comments by Tesla CEO Elon Musk and other officials during this week’s first-quarter earnings call, Gary Black the co-founder of Future Fund Active wrote on X that “we remain skeptical of TSLA’s plans to introduce more affordable vehicles, which appear to be scaled down versions of existing (Model Y) and (Model 3) trims, rather than new form factors that allow $TSLA to enter new segments” of the market.
Cannibals
A big concern is that a Model Q will wind up cannibalizing sales of the higher-profit Model Y just now getting a major update.
One concern is that other brands will still undercut Tesla on price. Ford, for example, last year announced it was setting up what CEO Jim Farley dubbed a “skunkworks” operation specifically to develop affordable EVs. And, with the backing of Amazon founder Jeff Bezos, the new Slate Auto will soon begin producing a $25,000 electric pickup.
Another concern is that by simply trying to shave costs off the Model Y Tesla may also wind up slashing its previously industry-leading profit margins.
That would become a worse problem if it “cannibalizes sales of Model 3 and Model Y,” something that Sam Fiorani, lead analyst at AutoForecast Solutions is convinced will “absolutely” happen. As a result, “it’s going to further cut into their profits,” which fell about 70% during the first quarter.
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