Tesla (NYSE: TSLA) CEO Elon Musk is optimistic that the company can deliver a lower-priced car that costs around half as much to produce as the Model 3 – the cheapest car in its portfolio.
Notably, markets expected Tesla to unveil its next model at the investor day which was held on March 1. However, while Tesla teased two new models during the presentation, it did not elaborate.
In response to a question about the next-gen vehicle, Musk said: “I think we’ll actually have to probably decline that answer.
“We will have a proper sort of product event, but we’ll be jumping the gun if we answer your questions.”
Tesla stock fell after the investor day as markets were expecting big announcements, including on the upcoming models.
However, bulls like Cathie Wood are optimistic about the stock – Wood bought Tesla stock after it crashed and expects the stock to rise multi-fold to $1,500.
Musk first floated the idea of a $25,000 car in 2020 but three years later there are limited details about the project.
Rumors have been floating around the car and some analysts believe that Tesla would name it Model 2.
Now Musk has offered some more details about the next generation small car and said that it would mostly operate as an autonomous car.
Notably, Tesla is facing stiff competition, especially in China where domestic auto companies are offering lower-priced EV models – Tesla has lowered car prices in China in order to spur demand.
Musk Touts New Lower-Priced Model
Despite the price cuts, its cars are pricier compared to many entry-level models from other Chinese EV companies and the starting price for Tesla Model 3 is around $33,500 in China – similar to that of a competitor, the BYD Seal.
Tesla currently relies on the Model 3 and Model Y in China and is looking to deliver the more costly Model S and Model X in China in the first half of 2023.
It recently lowered Model S/X prices in the US by between 4%-9% and after multiple rounds of price cuts, Tesla cars are more affordable than they were a year ago.
However, even its cheapest car might be out of bounds for many buyers and, in contrast, BYD and other Chinese companies have models across multiple price points.
Earlier this year, BYD, which is the market leader in China’s NEV (new energy vehicles) market launched the Dolphin hatchback at around $16,700.
It is looking to launch a smaller hatchback named Seagull with a starting price as low as $8,860.
Tesla Is Looking to Cut Vehicle Costs Further
Amid slowing sales growth, Tesla has turned to aggressive price cuts to spur sales and has downplayed demand fears multiple times.
During its 2023 investor day that was held on March 1, Tom Zhu who heads Tesla’s global production said: “As long as you offer a product with value at affordable price you don’t have to worry about demand.”
He was responding to a question on how Tesla plans to accelerate its market share in China, the world’s largest automotive market.
Our next Gigafactory will be in Mexico, manufacturing our next-gen vehicle pic.twitter.com/bk0IKrGtaZ
— Tesla (@Tesla) March 2, 2023
Musk also echoed similar views and added: “The desire for people to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla.”
Musk believes that price cuts aided by operational efficiencies would fuel the demand for Tesla cars.
The company, which is set to open its next gigafactory in Mexico, expects to compensate for the price cuts with economies of scale and lower raw material costs.
However, Tesla’s price cuts have been a headache for other automakers, especially startup EV companies which are anyways posting losses.
For instance, NIO reported a wider-than-expected loss for Q4 2022, with its gross margin also plummeting to a mere 3.9% in the quarter compared to 17.2% in the corresponding quarter in 2021.
Rivian also expects to post a gross loss in 2023 having recently announced its intention to raise $1.3 billion through convertible senior notes.
Musk believes Chinese EV Companies are Tough Competitors
During Tesla’s Q4 2022 earnings call, Musk was all praise for Chinese EV companies, Ford also sees Chinese EV companies as strong competitors as it tries to scale up its EV output.
Last year, investment firm Baillie Gifford also increased their stake in NIO, and many analysts consider NIO as a worthy competitor to Tesla – read our guide on how to buy NIO stock.
Through lower-priced models, Tesla might be able to gain more market share in emerging markets like China and India where buyers are more price-conscious as compared to developed countries.
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