Most Tesla Inc. (NASDAQ:TSLA) bulls have lamented about a lack of a sub-$30,000 car in the electric vehicle maker’s product pipeline. Ahead of the company’s March 1 Investor Day, New Street Research analyst Pierre Ferragu shared his thoughts on a budget model.
What Happened: The low-end car, which some refer to as Model 2, will likely be 15% shorter and 30% lighter, with a 25% smaller-sized battery, relative to the Model 3, Ferragu said in a series of tweets. The Model 3 is currently Tesla’s cheapest vehicle.
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The analyst said the deduction was based on how ICE compacts compared to midsize ICE sedans and extrapolating the comparison between Model 3 and ICE midsize sedans.
The Model 2 sedan production cost will likely be 37% less than the Model 3, with half of the difference coming from the car being smaller and the remaining half mostly from design, architecture and manufacturing innovations, Ferragu said. Including the full-self driving hardware, the cost of manufacturing will likely be $21,600 at scale, he added.
If the Model 2 comes with FSD capablility, with superior range and performance and with the screen and supercharging experiences of Tesla, it should command a premium over Toyota Motor Company’s (NYSE:TM) Corolla, the analyst said. This is because the Model 3 commands a premium over Honda Motor Company’s (NYSE:HMC) Accord, he noted.
Ferragu, therefore, estimates that the Model 2 will have a gross margin above 20% compared to the mid-single-digit margin for Corolla.
Why It's Important: The analyst is of the view Tesla can maintain a gross margin north of 30% for autos, as Model 2 and FSD increase in the product mix. “At $25k MRSP, Model 2 addressed 80% of the car market and paves the way for Tesla to exceed 12 million units and $400 billion in auto revenues in 2030,” he added.
This would mark a 460% increase from the $71.5 billion revenue Tesla reported for 2022.
Price Action: In premarket trading on Monday, Tesla stock was rising 1.07% to $198.99, according to Benzinga Pro data.
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