The status of the so-called Tesla 'Model 2' more affordable compact BEV — and how it would be prioritised vis-a-vis the firm's autonomous driving (AD) and robotaxi project — has been anybody's guess ever since the firm's CEO Elon Musk denounced reports of its cancellation as "lies".
On the company's Q1 earnings call, Musk confirmed changes to the plan. But what appears to have been postponed for now is not a Model 2 itself, rather the radical 'unboxed' production method for making it. In fact, the firm is now promising to accelerate the launch of what Musk calls "new models", pushing forward the start of production to early 2025 or possibly late 2024.
"These new vehicles, including more affordable models, will use aspects of the next generation platform as well as aspects of our current platforms, and will be able to produce on the same manufacturing lines as our current vehicle line-up," Musk says.
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We are using appears deliberately, as Tesla management was in no mood to elaborate greatly on what these new models might mean. But what does seem pretty clear is that, rather than previous promises of a 'big bang' new production process where Musk himself would be, to use one of his favourite phrases, living on the line as brand-new production capacity was rolled out, instead the new products will, at least initially, evolve from Tesla's existing car making.
"It is not contingent upon any new factory or massive new production line; it will be made on our current production lines much more efficiently," says Musk of a new vehicle. "And we think this should allow us to get to over 3mn vehicles of capacity when realised to the full extent."
"We are updating our future vehicle line-up to accelerate the launch of our low-cost vehicles in a more capex-efficient way. That is our mission: to get the most affordable cars to customers as fast as possible," adds Tesla's vice-president, vehicle engineering Lars Moravy.
"These new vehicles we build on our existing lines and open capacity. And that is a major shift to utilise all our capacity with marginal capex before we go spend high capex."
It was only in January that Musk said Tesla's "revolutionary" new production line was "quite far along," indicating that to some extent, the company's plans have seen a major revision in a short time. And the new strategy is quite the reverse of the initial teaser given by Musk about Tesla's next-gen production line, which he said in December "is not like any car production line that anyone has ever seen".
The new production plans also appear to mean a delay, if not a cancellation altogether, of the planned Mexico gigafactory, which Musk has previously said would take on Model 2 production after an initial ramp in Texas, and which has already received funding from the state government of Nuevo Leon. EV inFocus had already flagged that, based on Tesla discussion of timelines, anyone expecting a Mexico plant to move quickly towards production was likely to be disappointed.
Oft-discussed other Tesla plants in places as far afield as India or the UK now also look like little more than pipe dreams in the short-to-medium term.
Minimising risk
What Tesla may have realised is that the investor community has been growing increasingly concerned about the firm's ageing product line-up and the pressing need for a concrete timetable on a new offering to drive demand. And, if it was in any doubt, the swoon on the reports that Model 2 was cancelled would have reinforced that meesage.
So the new approach may, to some extent, be about assuaging concerns about the wait for the next mass seller. "The unboxed manufacturing method is certainly great and revolutionary, but with it comes some risks because [of] new production lines," admits Moravy.
The new narrative seems to be that Tesla is already driving production cost reductions on existing models. And these can be transferred to a Model 2 that is less revolutionary in how it is made, but can be delivered more quickly and with less analyst and investor concern about timeline slippage.
"All the subsystems we developed, whether it was powertrains, drive units, battery improvements in manufacturing and automation, thermal systems, seating, integration of interior components and reduction of LV controllers, all that is transferable. And that is what we are doing: trying to get it in the products as fast as possible," Moravy expands.
But Tesla is also "not trying to just throw away" all the engineering work done so far on the unboxed method. It will instead, he says, "utilise it to the best advantage of the cars we make in the future". So we might get a more radical approach somewhere down the line.
Unforthcoming
Appears; seems; might; EV inFocus makes no apology for these words, given Tesla's reticence to provide further details on the strategy. Twice, it skipped follow-up questions on the new $25,000 vehicle — which, let us not forget, was both the centrepiece of Musk's Q4 narrative just three months ago and what was on everyone's mind ahead of the call.
On the second of these occasions, Bernstein analyst Tony Sacconaghi specifically queried if the products might represent "tweaks on existing models, given that they are going to be running on the same lines, or are these new models". Musk unceremoniously shut him down, although he did promise more details at the 8 August robotaxi unveiling.
But that means this crucial question mark will hang around until then, unless Musk chooses to answer it in the interim. Our view is that this pivot is an eminently sensible strategy — albeit one much more redolent of the established automaker Tesla is becoming, rather than the book-rewriting challenger (and maybe why Musk, given his self-image, is less keen to talk about a more conventional Model 2 approach in favour of breaking new ground on AD and reinventing car usage).
Model 2 from scratch through an entirely new process screamed delays and cost overruns. Tolerable for where Tesla was when it embarked on Model 3, perhaps, not so much where it is today.
Model 2 built on existing learnings seems much more deliverable, filling the sales growth void that was threatening to open up ahead of Musk being able to prove that Tesla no longer needs to be judged as a carmaker. The remaining risk is that Model 2 is not really a new model at all; greater clarity on this would be helpful to allow investors to fully put the last few weeks behind them.
Ciaran has written about finance, politics and culture. He is passionate about e-mobility and what it means for our way of life.
Ciaran has a Masters in Ancient Philosophy from Oxford University.
