For weeks, Tesla fans and investors have been asking the company a critical question: Is a cheap “Model 2” coming or not?
Yesterday, the company used its first quarter earnings release to further confuse matters.
Tesla reported a 55% drop in profit on yesterday’s earnings call – its biggest year-over-year profit decline since 2012. It came in worse than analysts had expected, and most forecasts for the quarter were bleak.
However, Tesla’s stock price rallied on news that the company would, as CEO Elon Musk put it, “drive the launch of new models,” including “more affordable models.”
Musk’s meaning is not entirely clear.
The planned/unplanned $25,000 Tesla
Tesla has long pursued a growth strategy aimed at steadily shrinking the market and producing cheaper cars over time. The company introduced itself to the broader automotive market with more expensive, lower-volume cars such as the Model S luxury sedan and the Model X luxury SUV.
The technology developed for these cars also made its way into the cheaper Model 3 sedan and Model Y SUV, which were sold in much larger numbers. The Model Y briefly became the best-selling car in the world last year.
The next step in the strategy, Musk had long said, would be the alleged “Model 2,” a small car with a target price of around $25,000. It would be built on an entirely new platform. At that price, it would compete for the title of America’s cheapest electric vehicle. At one point, Musk told investors that Tesla could produce 20 million cars a year after its debut – more than 10 times current production levels.
Then he is said to have canceled the new electric vehicle. Investors and observers were stunned by a Reuters report in early April that claimed Musk had abandoned plans for the Model 2 in favor of a plan to produce a self-driving “robotaxis” – a business model that other tech companies have struggled with.
Musk denied the report, but further reports from other media outlets appeared to back it up.
Ambiguous answers to direct questions
Investors attended yesterday’s earnings release looking for concrete answers about the Model 2 plan. They didn’t get it.
Musk noted that Tesla still plans to produce more affordable models “in early 2025, if not the end of this year.” But he left questions about what “more affordable models” might mean. He said they would “leverage aspects of the next generation platform as well as aspects of our current platforms,” as if incorporating lessons from Model 2 research but sharing the platform underlying Model 3 and Y.
“We will be able to produce on the same production lines as our current range of vehicles,” he continued. This suggests that the Model 2 platform will not result in a car being sold to consumers.
Callers pressed him for details, but he declined to provide them.
One called for “an official announcement of the timeline for the $25,000 vehicle.”
Musk responded by saying, “Actually, Tesla is almost entirely about solving autonomy and being able to activate that autonomy for a massive fleet.”
Another asked: “Are these like tweaks to existing models, considering they will run on the same lines? Or are these new models?”
Musk responded: “I think we’ve said everything we wanted to on that front.”
This reaction elicited an audible “wow” from a veteran tech reporter in the audience.
What it could mean – fewer cars, more automation
Tesla does not operate a public relations department and does not answer questions from reporters. Therefore, these monthly earnings releases and Musk’s statements on his social media page X (formerly Twitter) are often all analysts need to understand Tesla’s strategy.
A pattern is increasingly emerging. Musk deflects questions about future cars and instead focuses on autonomous driving technology.
Musk answered questions about the Model 2 with details about the company’s efforts to build an autonomous taxi. He promised to reveal more details about a “cybercab” in early August. He showed screenshots of an Uber-like app that customers could one day use to summon a driverless Tesla.
Musk told investors to think of the company as “a combination of Airbnb and Uber,” meaning there will be a certain number of cars in the fleet that Tesla itself owns and operates. However, he also hinted that private Tesla owners might also be able to use their cars as taxis when they are not using them, saying: “There will be a number of cars whose ownership belongs to the end user.”
He discussed attempts to license the company’s self-driving technology to other automakers.
Tesla still introduces new cars, but they are attention-grabbing products that are never intended to sell in large numbers.
The most recent new product the company introduced was its Cybertruck – a conversation piece, but a low-volume car. The next planned release is the Roadster, a two-door sports car with a reported price tag of a quarter of a million dollars and attractive features like optional rocket boosters. Something like this will never sell in Model Y-like quantities.
Tesla, he seemed to suggest, was no longer a real car manufacturer. “If you value Tesla as much as you value a car company, you just have to do that – basically it’s just the wrong framework,” he said.