Tesla Reportedly Scraps Low-Cost Car Plans, Elon Musk Denies Story

Tesla, Inc TSLA stock is trading lower Friday following reports of the EV maker dumping its low-cost vehicle plans amid China competition.

According to a Reuters exclusive report, Tesla has canceled production of its much-anticipated affordable car, which veers away from CEO Elon Musk’s original mission to create electric vehicles accessible to a broader audience. 

This decision dampens hopes for expanding Tesla’s market reach and signifies a shift in focus toward developing self-driving robotaxis on the same vehicle platform, the report adds. 

Interestingly, Musk challenged the credibility of the report in his latest tweet.

Also Read: Tesla Struggles with Delivery Goals and AI Tech Expectations, Analysts Adjust Financial Forecasts

Musk’s vision, outlined in his 2006 master plan, involved using profits from luxury models to fund the development of a cost-effective family car. 

Despite previous assurances from Musk about launching the budget-friendly model by the second half of 2025, the project’s discontinuation comes amid escalating competition from Chinese electric vehicle (EV) makers, who offer cars at significantly lower price points, some as low as $10,000, Reuters writes. 

The change in strategy towards autonomous taxis introduces new engineering and regulatory challenges, potentially delaying delivery times further. 

The project, internally known as NV91 and externally as H422, was canceled in a company meeting attended by scores of employees, with instructions to halt all related activities and document the learning outcomes for future reference, claims Reuters.

This pivot raises doubts about Tesla’s ability to meet Musk’s ambitious sales target of 20 million vehicles by 2030 and maintain its competitive edge in the EV market. 

In March, Tesla announced price increases for the Model Y in the U.S. on April 1 and in Europe on March 22. Tesla offered discounts on Model Y trims in China to keep up sales momentum. 

After aggressively reducing prices for over a year, Tesla has seen its auto gross margins drop from a peak of 30% in the fourth quarter of 2021 to well below 20% amid the chip shortage crisis. 

In the first quarter, Tesla saw a year-over-year decline in vehicle deliveries for the first time since 2020, delivering 386,810 vehicles compared to 422,875 the previous year. 

Production also dropped to 433,371 units from 440,808 in the same period last year. The company did not meet analyst expectations. 

Tesla said the decrease in volume was partly due to the early stages of ramping up production for the updated Model 3 at the Fremont factory and disruptions from factory shutdowns. 

These shutdowns resulted from shipping diversions caused by the Red Sea conflict and an arson attack at Gigafactory Berlin. 

Despite these challenges, Tesla regained its position as the world’s top battery electric vehicle manufacturer by volume.

Tesla stock lost over 36% in the last six months.

Investors can gain exposure to Tesla via Tidal ETF Trust II The Meet Kevin Pricing Power ETF PP and Vanguard Consumer Discretion ETF VCR.

Price Action: TSLA shares traded lower by 3.42% at $165.26 on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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