Tesla’s CEO Elon Musk talked about the company’s upcoming low-cost car which some have long dubbed as the “Model 2.” His comments come a few days after Tesla began deliveries of its long-awaiting Cybertruck which received a mixed response.
In an interview with Sandy Munro – a car industry veteran and owner of Munro & Associates – Musk said, “We are working on a low-cost electric vehicle that will be made at very high volume.” He added, “We’re quite far advanced in that work. I review the production line plans for that every week.”
Musk touts Tesla Model 2
Notably, the model was rumoured to be in the work for long and at the investor day earlier this year, Musk said that Tesla would provide more details on new models later in the year.
Now, in the interview, Musk claimed in his usual way, “The revolution in manufacturing that will be represented by that car will blow people’s minds. It’s not like any car production line that anyone’s ever seen.”
He added, that Tesla is in advanced stages in working on the low-cost model and termed it “a level of production technology that is far in advance of any automotive plant on earth.”
Tesla to build the low-cost model in Texas
Meanwhile, Musk said that it would first build the low-cost model at its plant in Austin, Texas. He added, “Mexico will be the second place [it will be manufactured]. It would take too long to complete the factory in Mexico.”
Notably, Tesla announced the Mexico plant earlier this year but during the Q3 2023 earnings call, Musk said, “we’re laying the groundwork to begin construction and doing all the long lead items, but I think we want to just get a sense for the global economy is like before we go full tilt on the Mexico factory.”
Musk has for long been blaming higher interest rates for causing a slowdown and believes that the Fed’s rate hikes would only amplify a recession in the US. During the Q3 earnings call, he said, “I am worried about the high interest rate environment that we’re in. I just can’t emphasize this enough, that the vast majority of people buying a car is about the monthly payment. And as interest rates rise, the proportion of that monthly payment that is interest increases naturally.”
Tesla begins Cybertruck deliveries
Tesla first unveiled its pickup model – the trapezoidial-shaped Cybertruck – towards the end of 2019. The model’s deliveries missed several deadlines but Tesla recently began delivering the cars to customers.
During the Q3 earnings call, Musk said, “It’s a great product, but financially, it will take, I don’t know, a year to 18 months before it is a significant positive cash flow contributor.” Speaking further of Cybertruck, he said, “we dug our own grave with the Cybertruck.”
Notably, previously Tesla said that it has over 1 million reservations for Cybertruck but some industry observers believe that the number has since risen closer to 2 million. That said, these are non-binding reservations made with a mere $100 which the company has since raised to $250.
Cybertruck received a mixed reception
Meanwhile, while Tesla bulls had set huge expectations from the Cybertruck, it received a somewhat cold reception. To begin with, the model would begin at $60,990 which is more than 50% higher than what Musk touted in 2019.
The model would compete with the likes of Rivian’s R1T, General Motors’s Hummer, and Ford’s F-150 Lightning. Incidentally, the internal combustion engine version of Ford’s F-150 pickup has been America’s best-selling pickup for over four decades.
Jessica Caldwell, head of insights at auto research firm Edmunds, said, “This (Cybertruck) is going to appeal to … definitely a wealthier clientele that can afford the price point and they want something that is unique and quirky.”
She added, “That just isn’t a large segment of the population that can afford that especially where interest rates are.”
Also, the model’s range is lower than what markets were expecting, at least on the starting models. Sam Abuelsamid, principal research analyst at Guidehouse Insights said, “As a truck, the Ford and Chevy are more useful and certainly easier to see out of.”
He added, “Given that Teslas almost always fall short of (range) estimates in real world driving by anywhere from 10%-20%, I wouldn’t expect the longest-range version of the Cybertruck to achieve more than 300 miles on the road.”
Many people don’t want to buy Cybertruck, survey shows
After Tesla announced the pricing and specifications of Cybertruck, Canaccord Genuity’s team conducted a survey which showed that two-thirds of the respondents didn’t want to buy the model while the remaining 33% said they would be interested in buying the pickup.
Canaccord did not reveal the sample size but the survey was conducted on those who hadn’t already made the reservation for Cybertruck.
In an interview with Yahoo Finance, Canaccord analyst George Gianarikas said, “We had an incredibly robust response to our survey. It was interesting to hear that two-thirds didn’t want it and, frankly, that was a lot better than we expected,”
He added, “Based on the discussions I’ve had individually, which have been in the hundreds, it’s the look of the vehicle that gets people excited or revolts people.”
EV price war
Meanwhile, Tesla still holds the pole position in the US EV market and leads the competition by a wide margin. That said, the company has had to lower vehicle prices to spur sales.
Tesla has started an EV price war and has lowered car prices multiple times. Due to the frequent price cuts, its operating margins fell to single digits in the second quarter of 2023. While its margins are still among the highest globally they are now less than half of what they were before the price war.
Musk believes that Tesla’s valuation is dependent on its autonomous driving. Speaking at Paris’ VivaTech innovation conference earlier this year, the Tesla CEO said that valuations are “strange” and stressed, “Sometimes I’ve said, ‘Hey, I think the stock price is too high at Tesla,’ and then the stock price goes up. I’m like, ‘okay.’”
Interacting with Bernard Arnault’s son Antoine Arnault Musk admitted “If you look at our total vehicle output, it’s almost 2 million vehicles this year or something like that. But that’s still only 2% of total vehicle production.”
He however stressed, “The potential for autonomy is that the value of autonomy is so high, that even if you have a discount, a percentage probability of autonomy happening, that is so incredibly valuable.”
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Mohit Oberoi
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