Tesla’s plan for affordable cars follows the playbook of its Detroit rivals
Tesla said the change would allow the company to quickly bring low-cost vehicles to market, but would result in smaller cost savings than expected and modest volume growth (Photo: Bloomberg)
Elon Musk’s new plan to use current product lines as the basis for new affordable vehicles instead of launching entirely new models follows the playbook of Tesla’s old-school rivals from Detroit, as some Tesla investors and analysts see it.
The shift toward incremental improvement, which reflects a joint strategy between Ford and General Motors, suggests that the future of auto manufacturing, which Musk has pledged to disrupt, could still look a lot like the past.
Musk’s new strategy followed an exclusive report from Reuters that Tesla had shelved plans to launch a highly anticipated new model expected to cost $25,000 by the end of 2025. Investors expected the affordable car, also known as the Model 2, to propel the company’s growth to unprecedented proportions. mass market car manufacturer.
Instead, Tesla said this week that it will use a current platform and production lines to produce so-called “more affordable” models early next year. No details or prices were provided.
The announcement led to a double-digit stock increase and received high praise from investors. Some analysts expect Tesla to offer base versions of the Model 3 and Y, which currently start at around $39,000 and $43,000.
“It’s a traditional strategy of automakers,” said Sandeep Rao, senior researcher at Leverage Shares, an investment management firm with assets of about $500 million, including in Tesla and other EV makers.
“You can go and buy a Volkswagen Golf Highline, which is a basic version, or you can go and buy a GT, which is a more expensive version and also 25% more expensive.”
Tesla did not immediately respond to a request for comment.
“That’s probably going to be one of the most popular cars when they come to market,” said King Lip, chief strategist at BakerAvenue Wealth Management, which has a small position in Tesla.
Tesla said the change would allow the company to quickly bring low-cost vehicles to market, but would result in smaller cost savings than expected and modest volume growth.
‘STRIPPED DOWN VERSIONS’ IN ONE YEAR?
Some analysts expect the new models to look familiar.
“We think it’s more likely that Tesla will try to launch stripped-down versions of the Model 3 and Y as lower-priced models, but we don’t know how much cost Tesla can realistically incur,” Bernstein analyst Toni Sacconaghi said in a report.
In January, Tesla said it was approaching “the natural limit of cost reduction for our existing vehicle lineup.” Musk’s target of a new car within a year was seen by many investors and analysts as optimistic at best, as Musk has often fallen short of his own timing predictions: the new Cybertruck arrived four years after Musk unveiled it in 2019, and Tesla is There there are still problems with ramping up production.
“By traditional old-car standards, the Cybertruck’s driveway is a crawl,” says James Womack, former director of research at the Massachusetts Institute of Technology. He co-authored a 1990 book on Toyota’s lean production philosophy and methods and said it was long overdue for Tesla to behave like a traditional automaker when it came to launching new vehicles on time.
“Musk can step onto the rough edge and lean over the cliff as a tech visionary,” he said. But he and others expressed concern about the “execution risk” of whether Tesla could do what Musk plans in time. “They just need to avoid too much Musk during the execution” of the production plan, Womack said.
While Tesla’s shift “dampens or slows manufacturing innovation,” the change will allow Tesla to respond more quickly to the threat from Chinese automakers, said K. Venkatesh Prasad, a former Ford engineer who is now chief innovation officer at the Center for Automotive Research. .
“There is an urgency. If you don’t have speed, you lose the game,” Prasad said.
The change in strategy has caused some investors to reconsider Tesla’s industry-leading valuation. Don Nesbitt, senior portfolio manager at ZCM, said that while there is the possibility of autonomous driving, ultimately they now have to move to making cheaper models.
Tesla used to be seen as a technology stock; “Now you’re really talking about a car manufacturer and that’s it,” he said.
First print: April 26, 2024 | 10:06 am IST