Elon Musk's Tesla (TSLA, Financial) is at the center of controversy following reports by Reuters about the cancellation of its much-awaited affordable mass-market car, "Model 2". Musk has countered these claims on X, asserting that the reports are false, which mitigated some of the stock's initial losses. This development comes at a critical time, as Tesla recently reported an 8.5% drop in Q1 deliveries, highlighting growing concerns over its slowing growth trajectory.
The competition in China is notably impacting Tesla, with rivals like BYD Company (BYDDY, Financial), NIO (NIO, Financial), and Li Auto (LI, Financial) eroding its market dominance. Despite the competitive pressures, Elon Musk has not indicated any shift away from producing an affordable vehicle. He mentioned during the Q4 earnings call that production on a new vehicle platform is expected by the end of 2025, though he acknowledged his timelines tend to be overly optimistic.
Tesla's CFO, Vaibhav Teneja, shared insights into the company's strategic positioning between two major growth phases. The first phase involves the expansion of Model 3 and Model Y, while the second phase focuses on launching a next-generation platform aimed at producing a crossover or hatchback priced around $25,000.
Musk also emphasized Tesla's future reliance on AI and full self-driving (FSD) technology, including the development of robo-taxis. However, with substantial revenue from software or robo-taxis expected in the more distant future, the success of a new EV launch remains crucial for bridging the current financial gap.
The economic feasibility of producing a lower-priced EV poses significant challenges, especially in competing against Chinese manufacturers targeting the U.S. market. For instance, BYD already offers an EV within the $10-$15K range, which could further pressure Tesla's margins, already impacted by ongoing price reductions.
In conclusion, the potential cancellation of Tesla's mass-market vehicle project could represent a significant setback for its growth ambitions, particularly as the company faces stagnation in its growth metrics.
