Image courtesy of Tesla

$25,000 Tesla In The Works For 2025, Elon Musk Say

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Prior the Tesla earnings call on January 24, 2024, Reuters reported the company had notified its suppliers it wants to start production of a new mass market electric vehicle code named “Redwood” in mid-2025. That information came from four people familiar with the matter. Two of them described the new model as a compact crossover. Tesla sent “requests for quotes,” or invitation for bids, for the Redwood model to suppliers last year and forecast weekly production volume of 10,000 vehicles, two of the sources said. Three sources told Reuters production would begin in June of 2025.

Tesla Redwood Coming … Soon

In his remarks during the earnings call later on January 24, Elon Musk confirmed that Tesla expects to start production of the new model in the second half of 2025 at its factory in Austin, Texas. Later, it will be built in a new factory in Mexico and then another new factory outside North America. Tesla also plans to build cheaper cars at its factory near Berlin and is interested in building a factory in India to produce less expensive electric cars, sources said previously. The next-generation Tesla architecture is known internally as NV9X and will include two or more models, the sources told Reuters.

It is interesting that the code name for the new model is “Redwood.” Former Tesla CTO JB Straubel has started his own battery recycling company called Redwood Materials. Straubel is now a member of the Tesla board of directors. Apparently, “Redwood” has some sort of internal meaning that resonates with both Musk and Straubel.

While we don’t have many details, the new model from Tesla will be built on an entirely new platform, one that presumably incorporates all the manufacturing lessons Tesla has learned over the past 14 years. There is a good chance all or most of the chassis for the car will be high-pressure castings, which are expected to lower the cost of production to the point where the car can be sold to the public at a price around $25,000.

That would allow Tesla to compete with conventional cars, especially after the federal tax credit of $7,500 is applied. It would also allow Tesla to meet the competition from Chinese manufacturers, especially BYD, which is ramping up its plans to export cars to Europe, South America, Australia, and other regions.

The Redwood model is also expected to allow Tesla to increase the volume of cars it sells per year. Three years ago, Musk bragged his company would see sales growth of 50% a year, on average, through 2030. But growth last year was around 27%, a number which would make most car company executives jump for joy but disappointed investors. Musk said on the earnings call on Wednesday, “In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next-generation vehicle at Gigafactory Texas.” And yet, Tesla Energy had a banner year, which nobody seems to want to talk about.

Tesla & The Culture Of Musk

Musk, despite his many talents and accomplishments, has a tendency to over promise and under deliver. Based strictly on past performance, the average time between when he announces a new product and when it actually goes on sale is about three years. That doesn’t mean the Redwood car won’t go into production next year. It does mean we shouldn’t be surprised if its introduction gets pushed back a year or maybe two. “They have been overly optimistic on most of their new product launches. Volume output is more likely to begin in 2026,” one of the sources told Reuters.

Musk said in May that Tesla was working on two new products with the potential for combined sales of 5 million vehicles a year. “Both the design of the products and manufacturing techniques are head and shoulders above anything else that is present in the industry,” he said at Tesla’s annual shareholder meeting. Tesla plans to make an inexpensive robotaxi and an entry level, $25,000 electric car based on the same vehicle architecture, according to Walter Isaacson’s biography of Musk released in September, which includes interviews with the CEO and executives.

Musk said on Wednesday, “I’m often optimistic regarding time. But our current schedule shows that we will start production towards the end of 2025” and that “We’ll be sleeping on the line practically.” No specifics on the features or pricing of the vehicles were offered, and Musk warned that his timeline “should be taken with a grain of salt” due to the complexities of developing new manufacturing technologies. “You have to design a machine that has never existed to build a car in a way that has never existed,” added Musk. “Both the design of the products and manufacturing techniques are head and shoulders above anything else that is present in the industry,” he said at Tesla’s annual shareholder meeting last year.

Making a profit from the new, less expensive EVs will be challenging, given the costs of batteries as well as traditional difficulties producing quality inexpensive vehicles. Tesla in recent years tore down a Honda Civic, whose price starts at $23,950 in the United States, to study how to make cheaper cars, two separate sources told Reuters.

The Verge says that last year Musk biographer Walter Isaacson told Axios that the car would have a futuristic Cybertruck style design and be developed alongside an autonomous robotaxi. The company teased a pair of new vehicles at an investor event in March, with one appearing to be a smaller car and the other a small commercial truck.

Although Musk has publicly talked about Tesla’s plans to offer a vehicle priced at $25,000, the company has struggled to hit aggressive price targets like these in the past. For years, Musk’s stated aim was to release a Model 3 car costing $35,000, but that model didn’t stick around for long. Meanwhile the Cybertruck was eventually released with a starting price of $60,990, up from the $39,900 it was announced with four years earlier.

The Takeaway

What is left unsaid in all this is that Tesla, once the leader in electric car sales by a wide margin, is feeling the hot breath of BYD and other Chinese manufacturers on the back of its neck. BYD sold more pure electric cars than Tesla in 2023 and is matching Tesla dollar for dollar when it comes to reducing the price of its cars. Tesla once challenged other manufacturers to produce compelling electric cars and now BYD is doing the same to Tesla.

It’s clear that a 50% growth rate every year is not a realistic goal. One of the problems with Musk is that his grandiose promises tend to cast Tesla in a bad light in the investment community even though its profit margins are the envy of the industry and its sales growth compared to its competition is pretty darn good as well.

There are two points of view here. One is investors who are praying that Cathie Wood is right when she says Tesla shares will skyrocket to $3000 per share by 2027. The other is seasoned business professionals who know that price/earning ratios ultimately are what drive the value of real companies after they graduate from “move fast and break things” start up mode. Tesla is becoming a mature company, which tends to put a damper on unrealistic expectations.

One of the reasons Elon may be demanding the Tesla board pump up his compensation dramatically is that he is addicted to that Silicon Valley ethos and needs another fix. In other words, he is bored with Tesla and looking for something new to occupy himself and feed his addiction to high risk/reward situations. There are some who think Musk is a modern day version of Icarus. If the new Redwood model is a scaled down version of the Cybertruck, that will be a huge disappointment for entry level buyers and a sign that Musk simply cannot adapt his thinking to the needs of the marketplace rather than his own hyperinflated ego.

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Steve Hanley

Steve writes about the interface between technology and sustainability from his home in Florida or anywhere else The Force may lead him. He is proud to be "woke" and doesn't really give a damn why the glass broke. He believes passionately in what Socrates said 3000 years ago: "The secret to change is to focus all of your energy not on fighting the old but on building the new."

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