Tesla Model 2: Here’s what we know about it

Tesla Model 2: Here’s what we know about it

Time to compete in the lower-end EV market

Investors have long grumbled that Tesla Inc. needs a lineup refresh if it’s to keep growing amid slowing demand for EVs.

Tesla last month told Wall Street it will likely grow slower this year as it is in between “two major growth waves.” The next-generation car is a key part of that second wave.

“Tesla will need to offer an affordable vehicle to expand and continue the rapid growth of their deliveries,” Morningstar analyst Seth Goldstein said in an interview.

Tesla “has done very well” in the luxury and entry-level luxury markets, but does not compete in the lower-end market, he said.

The market has punished Tesla shares for the vagueness of its 2024 guidance, alongside broader concerns about EV demand and the company’s price cuts hitting profit margins.

Tesla’s stock has lost 27% so far this year, and is down 4% in the past 12 months. That contrasts with gains of nearly 4% and 20% for the S&P 500 index SPX in these timeframes.

Here are four things to know about Tesla’s next-generation EV, often dubbed the Model 2:

How much will it cost?

There’s no official word on how much the car would cost, but the expectation is that the new EV would cost around $25,000, and must remain under $30,000.

The Model 3 is Tesla’s lowest-cost EV, and initially, it was planned to be a mass-market vehicle costing around $30,000.

The cheaper Model 3 version starts at around $39,000, and an all-wheel-driving, longer-range model is closer to $50,000.

Vehicles in general have become pricier as more safety and entertainment features are added, and the average U.S. vehicle price hovers around $48,000.

When will it be available, and where will it be made?

At the time it reported fourth-quarter earnings, the company gave investors some indication of when it expects to start production of the next generation.

Chief Executive Elon Musk went a bit further at the post-results call, saying that the company is “very far along” on the next-generation vehicle and currently planning to start its production in the second half of 2025.

Production will start in Texas, and a future factory in Mexico likely will be the newest EV’s second production location. Tesla will identify other locations outside of North America at the end of the year, Musk said.

Some analysts have cast doubt on that timeline, however. Toni Sacconaghi with Bernstein recently wrote in a note that Tesla “has historically been optimistic on estimated timeframes.”

“The upshot is that we believe high volume availability of Model 2 may only begin well into 2026, assuming the ramp is not as challenging as Tesla has experienced with its other new models (Cybertruck, Model 3), which is not assured,” he said.

What is this next-gen platform?

Tesla confirmed it was working on a next-generation platform on its “Master Plan 3” analyst event in March, but little concrete is known.

The event was a negative for Wall Street, which faulted Tesla for being light on details about the next-generation car and finances.

On the post-results call last month, Musk again shied away from details about the car, saying that the event was “an earnings call, not a product announcement.” But he went on to say that the company is “very excited” not only about the next-generation vehicle itself, but also how it designed the manufacturing process

“This is a revolutionary manufacturing system, far more advanced than any other automotive manufacturing system in the world, by a significant margin,” Musk said.

Several years ago, I said perhaps the most important competitive characteristic of Tesla in the future will be manufacturing technology. And you will really see that come to bear with our next-gen vehicle,” he said.

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