Why Tesla Is No Longer Working On A Lower-Priced EV

Tesla, Inc. TSLA CEO Elon Musk clarified on the company's fourth-quarter earnings call the electric vehicle manufacturer will not release any fresh models in 2022.

Tesla's $25K Car A Distant Dream? Tesla's announcement has poured cold water on hopes of seeing an affordable low-end car from the company this year. It is an about-face from Musk, who made an announcement concerning the $25,000 car at the 2020 Battery Day event.

The Tesla CEO said at the time that the company would manufacture a $25,000 EV that is fully autonomous, attributing the price competitiveness to new battery cell chemistry and improved manufacturing technology.

The car, which was widely referred to as Tesla's Model 2, was rumored to be planned for manufacture at Tesla's Giga Shanghai facility. Initially, it was reported that the company would launch the model in China in 2022. Musk later reportedly told employees in a meeting in September 2021 that production of the car would start in 2023.

Responding to an investor question on the earnings call regarding the $25,000 car, Musk said: "well, we're not currently working on the — on a $25,000 car." He did not rule out of the possibility of the company getting to it at some future point. 

Such an offering may not be available until 2025, Bernstein analyst Toni Sacconaghi Jr. said in a note.

Related Link: Is Tesla Late To Low-End China EV Party? As XPeng, Volkswagen Now Selling A $25,000 Car In China

Pushbacks For $25K Model Launch: Tesla has reworked its priorities and the EV maker's focus is on bringing full-self driving software to fruition. The company is also focusing on the Cybertruck and its Tesla bot.

For those who are curious as to why Tesla can't work simultaneously on a low-end offering, the Bernstein analyst said Tesla may be slowing down on its R&D spending. During a period of hypergrowth, Apple slowed its R&D spending, which resulted in a period of fewer product launches and weaker growth, the analyst said. 

Among the reasons highlighted by Musk on the earnings call: his expectations that FSD functionality and robotaxis will drive significant demand elasticity, Sacconaghi Jr. said. Additionally, Tesla believes the Model 3 and Model Y have "significant runaway" ahead of the them, the analyst said. 
Tesla has several levers to lower the prices of these two models over time, in Bernstein's view. 

At last check, Tesla shares were down 0.89% at $914.22 Wednesday morning. 

Related Link: Tesla Facing Increasing Competition From These 2 Carmakers: Report

Photo courtesy of Tesla.