Tesla's plan for affordable cars takes page from Detroit rivals
Send a link to a friend
[April 26, 2024] By
Abhirup Roy, Norihiko Shirouzu and Hyunjoo Jin
SAN FRANCISCO/AUSTIN, Texas (Reuters) - Elon Musk's new plan to use
current product lines as the basis for new affordable vehicles — rather
than springing for all-new models — follows the playbook of Tesla's
old-school Detroit rivals, as some Tesla investors and analysts see it.
The shift toward incremental improvement, mirroring a common strategy of
Ford and General Motors, suggests the future of car-making that Musk has
promised to disrupt may still look a lot like the past.
Musk's new strategy followed an exclusive Reuters report that Tesla had
shelved plans to release a long-awaited, new model expected to cost
$25,000 in late 2025. Investors had expected the affordable car, often
called the Model 2, to drive the company's growth into a mass-market
automaker.
Instead, Tesla said this week, it will use a current platform and
production lines to produce what it called "more affordable" models by
early next year. It did not provide details or pricing.
The announcement sparked a double-digit stock rise and drew widespread
praise from investors. Some analysts expect Tesla to offer basic
versions of the Model 3 and Y, which currently start at about $39,000
and $43,000.
"It is a traditional automaker strategy," said Sandeep Rao, a senior
researcher at Leverage Shares, an investment management company 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 buy a GT, which is a pricier 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, if they do
get it launched," 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 launch low-cost
vehicles swiftly but would result in smaller cost reduction than had
been expected and modest volume growth.
'STRIPPED-DOWN VERSIONS' IN A YEAR?
Some analysts expect the new models to look familiar.
"We see it as more likely that Tesla will attempt to launch
stripped-down versions of the Model 3 and Y as lower-cost models,
however we are unclear on how much cost Tesla can realistically take
out," Bernstein analyst Toni Sacconaghi said in a report.
In January, Tesla said it was approaching "the natural limit of cost
down of our existing vehicle lineup."
[to top of second column] |
Tesla Model 3 on display at the Everything Electric exhibition at
the ExCeL London international exhibition and convention centre in
London, Britain, March 28, 2024. REUTERS/Peter Cziborra/File Photo
Musk's target of a new car in a year was seen as optimistic at best
by many investors and analysts, given that Musk has often failed to
meet his own timing predictions: The new Cybertruck arrived four
years after Musk unveiled it in 2019, and Tesla is still having
trouble ramping up production.
"By traditional, legacy car guy standards that Cybertruck ramp is a
crawl," said James Womack, a former research director 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 act like a legacy car maker when it came to
launching new vehicles on time.
"Musk can tread out on the ragged edge and lean over the cliff as
tech visionary," he said. But he and others raised concerns about
"execution risk" — whether Tesla could do what Musk plans, on time.
"They just need to avoid too much Musk in execution" of the
production plan, Womack said.
While Tesla's shift "tempers or slows down manufacturing
innovation," the change will enable Tesla to respond faster 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 didn't have speed, then you lose the
game," Prasad said.
The change in strategy has some investors rethinking Tesla's
industry-leading valuation. Don Nesbitt, senior portfolio manager at
ZCM, said that while there is the possibility of autonomous driving,
eventually, right now they need to shift to making lower-cost
models.
Tesla used to be seen as a tech stock; "Now you're really talking
about an automaker and that's it," he said.
(Reporting by Hyunjoo Jin, Abhirup Roy and Norihiko Shirouzu;
additional reporting by Lewis Krauskopf and Suzanne McGee; Editing
by Peter Henderson, Jonathan Oatis and Lisa Shumaker)
[© 2024 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|