Image courtesy of Tesla

Musk: No Tesla Model 2 For You! (Maybe)

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The Elon Musk biography by Walter Isaacson details in exquisite detail how a group of Tesla engineers lobbied Elon Musk for years to give up his fixation on robotaxis and get on with the business of making a less expensive mass market car. That car is usually referred to as the Model 2, although that is not the name Tesla would use for it. The discussion went on for two years or more, but then Isaacson said the engineers eventually won the argument and the decision was made to get on with making a lower priced Tesla that would expand Tesla’s market to more buyers.

Last fall, Paul Fosse reported the Model 2 would be built at the Gigafactory in Austin. Earlier this year, a writer I hold in the highest regard noted that the idea of lower priced EVs — like the on-again, off-again Model 2 — seemed to be getting further and further away, but then in February, Reuters reported that Tesla had started notifying suppliers to be ready to deliver parts to manufacture the Model 2 by the middle of 2025 and to expect production numbers to reach 10,000 vehicles a week.

There were reports that the Model 2 would use high-pressure castings for most of its structure. There was even a suggestion that the entire chassis of the car would be made from one high-pressure casting. At one time or another, people said it was going to be manufactured in Germany, in China, in Mexico, or in a new factory in  India. This story has had more twists and turns than the decade-long Project Titan at Apple, which finally came to a dead end last month after an investment by the company of more than $2 billion.

Tesla Model 2 Cancelled In February

But according to a report by Reuters on April 5, 2024, Tesla has canceled the Model 2 and will resume its efforts to build robotaxis. So, here we are back at square one again. I should have written this as my April Fool’s article, but no one would have believed it. It is too fanciful, too far fetched to have any credibility, but it is true nonetheless according to three company insiders and an internal memo seen by Reuters.

The decision represents an abandonment of a long standing goal that Elon Musk has articulated several times in his “secret” master plans — building affordable electric cars for the masses. His first “master plan” in 2006 specifically called for manufacturing luxury models first, then using the profits to finance a “low cost family car.”

After the news story was published today, Musk posted on his social media site that “Reuters is lying (again)” but did not identify any specific inaccuracies.

Two sources said they learned of Tesla’s decision to scrap the Model 2 in a meeting attended by scores of employees, with one of them saying the gathering happened in late February. “Elon’s directive is to go all in on robotaxi,” that person said. The third source confirmed the cancellation and said new plans call for robotaxis to be produced but in much lower volumes than had been projected for the Model 2.

Several company messages reviewed by Reuters about the decision included one on March 1 from an unnamed program manager for the affordable car discussing the project’s demise with engineering staff and advising them to hold off on telling suppliers “about program cancellation.” A fourth person with knowledge of Tesla’s plans expressed optimism about the decision to pivot back to robotaxis, a segment Musk has envisioned as the future of mobility. The source cautioned that Tesla’s product plans could change again based on economic conditions.

Building Affordable Cars Is Hard

Squeezing profits from entry-level vehicles is a challenge for any automaker, Reuters said, but Tesla’s delay in pursuing this car model made it much tougher because it now faces far more competition in that price range — cars that are on the market already, will arrive soon, or will at least arrive by the time the Model 2 would. While Tesla spent years developing its highly experimental Cybertruck, Chinese automakers raced ahead on affordable EVs, grabbing market share, gaining economies of scale, and offering consumers bargain prices that Western automakers are struggling to match.

Plans for the more affordable Tesla have been seen as key to delivering on Musk’s stratospheric ambitions for sales growth. Musk said in 2020 that Tesla aspired by 2030 to sell 20 million vehicles a year. That is approximately double what the top selling automakers in the world have ever sold in a single year. Naturally, a $25,000 vehicle has been seen as critical to any attempts at such a target and has been included in countless sock market analysts’ forecasts for Tesla sales. According to a Tesla investor relations document viewed by Reuters, the company’s plans call for sales to rise to 4.2 million vehicles by 2028 compared to 1.8 million last year.

The long awaited Model 2 was referred to as NV91 internally and H422 externally when discussing it with suppliers, according to two of the sources and company messages reviewed by Reuters. Messages from the unnamed Tesla program manager to staffers referenced those code names in discussing the project’s termination. One of those messages sent March 1 said that “suppliers should halt all further activities related to H422/NV91.” The sources said they did not know all the reasons behind the decision to kill the project.

In another March 1 message, the manager thanked engineering staffers for their efforts and urged them to document what they had learned. “I’d like to thank everyone for all your hard work and dedication to pushing boundaries and executing the best design possible given the aggressive constraints we had to work within,” the message said. “We would not want all our hard work to go to waste, so it’s important that we tie things off and document things properly.” The messages also showed meetings on the affordable-car project being canceled. The two sources said some engineers have been reassigned.

What Comes Next For Tesla?

Tesla’s timeline and business model for robotaxis remain unclear. Musk has publicly predicted a future of mobility in which driverless taxis could eventually become a more common mode of transport than human-driven cars. He has said Tesla, the world’s most valuable automaker, would be “worth basically zero” without achieving full self driving capability. [Editor’s note: Since Steve wrote this, we have seen a tweet from Elon Musk that a Tesla robotaxi reveal will be on August 8th. Whether that’s just the vehicle that would become a robotaxi, and it’s being revealed way early like with the Semi & Cybertruck, or it’s going to be aligned with the start of robotaxi testing/operations, we don’t know — those are two very different things of course. —Zachary Shahan]

Tesla has yet to prove it can produce an autonomous car despite years of predictions by Musk that one was just around the corner, an expectation that partly underpinned Tesla’s soaring valuation. The automaker faces lawsuits and investigations into crashes involving its Autopilot and Full Self-Driving driver-assistance systems, which are not fully autonomous. Tesla has blamed the accidents on inattentive drivers.

Musk has every reason to be unhappy with Reuters. Last year it reported that Tesla had rigged the in-dash range meters in its vehicles to give overly optimistic  projections. It also reported in December 2023 that Tesla blamed “driver abuse” for chronic failures of suspension and steering parts it had known were defective for years. Just days ago, Tesla reported an 8% year-over-year decline in deliveries just after BYD reported a 13% gain. Some may see this new development as a sign that Tesla, despite its vaunted technical prowess, simply cannot compete with its Chinese competitors. Ironically, Tesla was one of the companies that showed those companies how to manufacture automobiles, which may be the unkindest cut of all.

Tesla is late to the affordable electric car segment in part because of a pivotal decision by Musk. In 2020, after releasing its hit crossover, the Model Y, Tesla focused on the highly experimental Cybertruck instead of an affordable car. The company has also struggled to work through manufacturing problems, particularly with the truck’s pioneering battery technology and the difficulty of using stainless steel for the body of the truck. “We dug our own grave with the Cybertruck,” Musk has said.

Elon always said he had a master plan and we believed him. But now it seems he has no credible plan at all. There was a time when Tesla was in dire financial straits and Tim Cook of Apple refused to take phone calls. Now that Project Titan is dead and Tesla’s stock valuation is plummeting. we can imagine this conversation taking place at Tesla headquarters: “Mr. Musk, sir? Someone named Tim Cook calling for you on line one.”


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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." You can follow him on Substack and LinkedIn but not on Fakebook or any social media platforms controlled by narcissistic yahoos.

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