Facing one of the worst stock declines in Tesla’s 14-year history, Elon Musk was under pressure this week to deliver a reassuring message to investors about the next generation of electric vehicles and a compelling vision for an AI-driven, automated future.
Instead, what the CEO offered — alongside even worse-than-expected first-quarter profits and the company’s first cash outflow since the start of the pandemic — was a classic Musk accusation.
Tesla will “accelerate the introduction of new models,” he said on Tuesday, including a promised “affordable” car at a lower price to compete with the impending influx of ultra-cheap Chinese rivals in the U.S. market.
Musk, however, was deliberately vague about whether this was a new so-called “Model 2,” the mass-market car he announced in January with a reported price tag of $25,000.
After years as the world’s only serious electric vehicle maker, Tesla is finally facing real competition, both from established automakers like Hyundai and from fast-growing Chinese brands that are leaders in battery technology and have lower manufacturing costs. And Musk’s open posts on his social media platform X threaten to damage his car company’s brand.
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He testily refused to comment this week on reports that the ambitious Model 2 project – which called for a new “revolutionary manufacturing system” at factories in Texas and Mexico – had been scrapped so the company could focus on a self-driving “robotaxi.” “I could concentrate.
Instead, investors were given a “Plan B” for cheaper cars to be manufactured on existing production lines and systems to reduce Tesla’s rising costs as the company shifts billions of dollars in investments into AI and the tens of thousands of GPU chips needed to train it the models. Musk promised an update alongside his robotaxi launch in August.
Some analysts asked Musk if he was now talking about building a budget version of the automaker’s recently redesigned Model 3. He didn’t get involved.
“Elon is playing it safe,” said Christopher Tsai, chief investment officer at Tsai Capital, a Tesla investor. “It uses the same production line for a human-powered vehicle and a robotaxi, with the ability to switch between the two depending on market demand.”
Although the share price recovered 13 percent after the presentation, it is still down 35 percent this year and is trading at less than half of its peak value of $1.2 trillion at the end of 2021.
Shareholders and analysts are increasingly concerned that the company, which warned earlier this year that it was “between two growth phases,” would compete with new Chinese brands, albeit with increasingly outdated models.
The Model 2 “appears to have morphed into something less radical than previously suggested, but there was confirmation that more models are to come,” wrote HSBC analyst Mike Tyndall.
Philippe Houchois, an auto analyst at Jefferies, said Musk wanted to “appease the market” by moving faster, but at the “risk of compromising products to speed up launches.”
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The decision to move faster comes as Tesla’s Chinese competitors push further into the mass market.
Hours after Musk’s call with investors, BYD, Tesla’s biggest competitor, announced it would bring its ultra-affordable Seagull EV to Europe and the UK starting next year.
The vehicle, which sells for less than $10,000 in China, has caused near panic among Western automakers, who argue they simply can’t compete with such prices.
“It will be a Seagull for the European market, a new Seagull,” BYD boss Stella Li told reporters, including Britain’s Auto Express, in Shenzhen.
Tesla investors remain aware that manufacturers in China, rather than established Western automakers, are likely to be its biggest competitors.
“China has built an industry that can produce excellent cars in almost every product range at truly remarkable prices,” said James Anderson, managing partner at Lingotto Investment Management, which holds Tesla shares. “A BYD Seagull under $10,000 domestically is a clarion call.”
He told the FT that Tesla “recognizes the reality of the Chinese pricing challenge”.
The Model 2 — or whatever version of a cheaper car takes its place in the lineup — accounts for about half of analyst forecasts for Tesla’s long-term sales.
Had the plans been shelved or ambitiously scaled back, Tesla – which once planned to grow to the size of Toyota and Volkswagen combined by 2030 – would have remained a more modest manufacturer than expected for the time being.
The idea that the company would scrap the model “makes no sense,” said a former executive, noting that Musk was always “educating” those around him about the increasingly pressing need to cut costs.
“The whole premise of the Gigafactory, the whole point of procurement [battery] “We wanted to lower the price to get cheaper cars,” the former managing director added. “If he really wants mass adoption, he must know from last year’s turmoil that affordability is the big issue.”
Tesla has cut prices several times – including this week – to boost sales, although this has caused the resale value of its cars to plummet.
“We believe our awareness efforts coupled with attractive financing will go a long way in expanding our reach and driving demand for our products,” Tesla CFO Vaibhav Taneja said on Tuesday.
Tom Narayan, an analyst at RBC Capital Markets, said the decision to release vehicles earlier means that “fears that there has been no growth for years have largely been allayed,” although he said it was still unclear whether there would be There would be a $20,000 bill for “materials” for the car, something Tesla had sought for the Model 2.
Lars Moravey, head of engineering at Tesla, said many of the developments for the “next generation” model were “transferable” to the new models, including the battery system, heating and a reduction in the number of components.
“We’re not trying to just throw it away,” he said. “What we’re doing is bringing it in. . . “To deliver products as quickly as possible.”
But the never-ending drive to lower prices is only part of Tesla’s strategy.
Musk continues to believe that the company’s commitment to self-driving technology, which has resulted in several fatalities, will be the company’s key differentiator going forward.
He remained typically uncompromising and defiant with investors this week.
“If you only value Tesla as a car company, you basically have the wrong framework. “If you ask the wrong question, the right answer is impossible,” he said Tuesday. “If someone doesn’t believe Tesla will solve autonomy, they shouldn’t be an investor in the company.”