Written by Hyun Joo Jin, Norihiko Shirasui, and Ben Klayman
(Reuters) – Tesla is trading on a long-held promise of lower prices that investors have hoped will help fuel its growth into a mass-market automaker, according to three people familiar with the matter and a company message seen by Reuters. Development of the car was discontinued.
The company will continue to develop self-driving robotaxis on the same small car platform, the people said.
The decision marks the abandonment of a long-standing goal that Tesla Chief Executive Elon Musk has often made the company's main mission: affordable electric cars for the masses. His first “master plan” for the company, set out in 2006, called for building luxury models first and using the profits to fund “low-cost family cars.”
Since then, Mr. Musk has repeatedly promised such measures to investors and consumers. As recently as January, Musk told investors that Tesla plans to begin producing affordable models at its Texas factory in the second half of 2025. This follows an exclusive Reuters report detailing the plan.
Tesla's cheapest current model, the Model 3 sedan, retails for about $39,000 in the United States. This entry-level vehicle, which is no longer in production, was also known as the Model 2 and was expected to cost around $25,000.
Tesla did not respond to a request for comment. After the article was published, Musk posted on his social media site X: “Reuters is lying (again).” He did not point out any specific errors.
Tesla shares fell more than 6% after the Reuters report, but recovered some of their losses after Musk's post. Shares fell more than 3% in afternoon trading.
The apparent reversal comes as Tesla faces fierce competition globally from Chinese electric car makers that are flooding the market with cars priced as low as $10,000. Plans for driverless robotaxis may take longer to come to fruition, posing greater engineering challenges and increased regulatory risk.
Two people familiar with the matter said Tesla learned of its decision to scrap the Model 2 at a meeting attended by many employees, one of whom said the meeting took place in late February.
“Elon's directive is to go all-in on robotaxis,” the person said.
A third person confirmed the cancellation and said the new plan calls for producing robotaxis, but that production will be much lower than expected for the Model 2.
Several company messages seen by Reuters about the decision include a March 1 message from an anonymous program manager at Affordable Cars discussing the project's end with engineering staff and asking suppliers to He advised them to refrain from talking “about canceling the program.”
A fourth person familiar with Tesla's plans expressed optimism about Tesla's decision to pivot away from its budget car strategy in favor of robotaxis, an area that Musk envisions as the future of mobility. The person warned that Tesla's product plans could change again depending on economic conditions.
Squeezing profits out of entry-level cars is a challenge for any automaker. But things have gotten tougher now that Tesla has delayed pursuing the car that Musk once called a dream, as it faces far more competition in its price range.
Tesla has spent years developing its highly experimental Cybertruck, an expensive electric pickup truck, but Chinese automakers are racing ahead with affordable EVs to gain market share and scale. economy, offering consumers bargain prices that Western automakers struggle to match.
As China's EVs proliferate to counter Tesla's dominance, Mr. Musk has invested in companies including rocket maker SpaceX, brain chip developer Neuralink and social media giant X, which Mr. Musk acquired in 2022. He was in charge of a vast empire. The platform, formerly known as Twitter, was founded. Under Mr. Musk's shaky management, the company has lost much of its value as it has lost revenue and advertisers.
Tesla's affordable plan is seen as key to realizing Mr. Musk's stratospheric ambitions of increased sales. Musk said in 2020 that Tesla aims to sell 20 million vehicles by 2030, double the current sales volume of Toyota, the world's largest automaker. It is unknown how he gets there, as Model 2 has passed away.
Expectations for the $25,000 vehicle confirm more modest but still ambitious forecasts for Tesla sales by Wall Street analysts. These forecasts project car sales to rise from 1.8 million last year to 4.2 million by 2028, according to Tesla's investor relations materials.
Musk has wavered on projects before. In a biography of the entrepreneur published last year, author Walter Isakson said Musk plans to launch an entry-level electric vehicle in 2022 because Tesla's robotaxis will make cars irrelevant. It was reported as being “on hold”. Musk's advisers urged him to maintain this policy, the book said.
“Please cancel all future activities.”
Tesla referred to its affordable car project internally as “NV91'' and externally as “H422'' when discussing it with suppliers, according to two sources reviewed by Reuters and a company message.
A message from an anonymous Tesla program manager to staff referred to these code names when discussing the project's termination. One of his messages sent on March 1st states that “the supplier must cease all future activities related to his H422/NV91.”
Officials said they did not know all the reasons behind the decision to cancel the project.
In another message on March 1, managers thanked technical staff for their efforts and encouraged them to document their learnings.
“We would like to thank everyone who has worked within strict constraints to push boundaries and execute the best designs possible,” the message said. There is. “You don’t want all your hard work to go to waste, so it’s important to tie things together and document it properly.”
The message indicated that a meeting on the Affordable Cars Project had been cancelled. According to two people familiar with the matter, some engineers have been reassigned.
Tesla's robotaxi schedule and business model remain unclear. Mr. Musk has publicly predicted the future of mobility, and driverless taxis could eventually become a more common mode of transportation than human-driven cars. He said Tesla, the world's most valuable automaker, would have “essentially no value” unless it achieved full self-driving capabilities.
Currently, self-driving cars are only approved for very limited experimental use on public roads by regulators in the United States and China.
Despite Mr. Musk's long-time prediction that self-driving cars are just around the corner, Tesla has yet to prove it can produce self-driving cars, and that expectation has partially driven Tesla's soaring valuation. He supported me. The company faces lawsuits and investigations into crashes related to Autopilot and fully autonomous driver assistance systems, which are not fully autonomous. Tesla blamed the accident on careless driving.
Tesla's Autopilot issue is one of many that has come under intense scrutiny. Tesla faces a new investigation into its cars' range estimates, which comes after Reuters reported last year that the company rigged its cars' in-dash range meters to give rosy predictions. It was started in response to this. Reuters reported in December that “driver abuse” was the cause of chronic failures in suspension and steering components that automakers had long known were defective.
Tesla's image as a climate-friendly innovator has also been tarnished by Musk's right-wing political leanings and polarizing national rhetoric, which has turned some potential Tesla buyers off, according to surveys and experts. It is said that there is
The company on Tuesday reported an 8% year-over-year drop in vehicle deliveries, just after its main Chinese competitor BYD reported a 13% increase. Tesla shares fell 5% on the news, deepening their decline of more than 40% since July last year and losing about $400 billion in market capitalization.
Still, Tesla's $545 billion market cap is higher than the combined market caps of the next three most valuable automakers: Toyota, Porsche, and Mercedes-Benz. Tesla's stock price has long been based on future expectations for mass-market sales and self-driving cars, rather than current sales or profits.
I'm late
The cancellation of the affordable car project comes as Tesla and other established automakers are reeling from slowing growth in EV demand in the U.S. and Europe and intense competition in China.
If Tesla had continued to develop the low-cost car, the company estimates it wouldn't have hit the market until late 2025. But the entry-level EV segment is already crowded with attractive models from BYD and many other Chinese brands.
Tesla has lagged in this space, in part because of a pivotal decision by Musk. Tesla, which launched its hit Model Y crossover in 2020, focused on the highly experimental Cybertruck rather than an affordable car.
Musk unveiled a prototype of the angular, stainless steel-clad truck in 2019, predicting a starting price of around $40,000. The vehicle finally arrived last year, but the lowest-priced version of the truck will be available until 2025 and costs about $61,000.
The company has also struggled to resolve manufacturing issues, particularly with its trucks' pioneering battery technology. Musk hopes to sell the car in large numbers, but warned investors last fall that there would be “huge challenges” in ramping up production and making the car more profitable.
“We dug ourselves a grave with the Cybertruck,” he said.
During the same period, BYD's sales of electric vehicles in China soared, increasing from about 130,000 to more than 1.5 million, excluding the strong plug-in hybrid business and rapidly growing exports.
BYD already offers a number of low- and mid-priced models, including the sub-$10,000 Seagull hatchback. The Chinese automaker now plans to export its cars for more than double that price, but that's still lower than Tesla's target price for the cheaper cars it planned to make.
(Reporting by Hyun-joo Jin in San Francisco, Norihiko Shirotsu in Austin and Ben Klayman in Detroit; Editing by Mara Dickerson and Brian Thevenot.)
