Tesla abandons $25,000 electric car plan, pivots to robotaxis

Tesla abandons $25,000 electric car plan, pivots to robotaxisOn November 6, 2023, Reuters reported that Tesla, the American electric car manufacturer, had abandoned plans to launch a new generation of electric vehicles priced at $25,000, a long-standing promise. The news sent Tesla shares plummeting

Tesla abandons $25,000 electric car plan, pivots to robotaxis

On November 6, 2023, Reuters reported that Tesla, the American electric car manufacturer, had abandoned plans to launch a new generation of electric vehicles priced at $25,000, a long-standing promise. The news sent Tesla shares plummeting. Tesla CEO Elon Musk immediately took to the social media platform X, saying: "Reuters is lying." However, he did not elaborate on the specifics. Tesla's stock price rebounded somewhat afterwards.

Six months later, however, Musk appeared to indirectly confirm Tesla's abandonment of the $25,000 human-driven car development plan. During an earnings call on October 23, he said that making a budget electric car "makes no sense" unless it is fully autonomous.

Musk's latest remarks came in response to an investor who asked: "When can we expect a $25,000 regular Tesla, not a robotaxi?" Musk replied: "We're not making non-robo" before being interrupted by another Tesla executive. Musk later added: "Essentially, I think a $25,000 regular car makes no sense. There's not much value in doing that."

As early as April 5, Reuters had reported that Tesla had abandoned plans to launch a new, affordable, mass-market electric vehicle, but still planned to release a self-driving robotaxi. Since then, Musk has increasingly touted his plans for robotaxis and autonomous vehicles.

During the October earnings call, Musk said that Tesla does plan to release a "$25,000 car"the Tesla robotaxi Cybercab, a two-door, two-seater fully autonomous vehicle. The Cybercab prototype was unveiled by Musk in a Hollywood-style event on October 10.

Musk said that Tesla will begin production of the robotaxi in 2026 and will deploy fully autonomous versions of the Model 3 and Model Y in Texas and California starting next year. While Musk's promises about fully autonomous vehicles echo similar claims from a decade ago, Tesla still faces significant technological, regulatory, and legal hurdles in delivering on Musk's latest promises.

Until recently, offering a new, affordable car to the masses was central to Tesla's strategy to become the world's largest automaker. For years, Tesla aimed to achieve annual production of 20 million vehicles by 2030, more than ten times its current sales volume and nearly twice the production of Toyota, the current global automotive sales champion. In May, Tesla removed the 20 million production target from its latest Impact Report.

In January, Musk confirmed plans to launch a new, budget electric vehicle during an earnings call. He said the new generation of vehicles would be released in 2025, bringing a second major "growth wave" for Tesla after the launches of the Model 3 and Model Y in 2017 and 2020, respectively. Investors and Tesla fans typically referred to this anticipated budget car as the "Model 2," below the Model 3, currently Tesla's cheapest model priced starting at $42,490.

Also in January, Musk described the new car as requiring "new, revolutionary manufacturing technology." But in April, after Reuters reported Tesla's abandonment of the Model 2, Musk put forth a plan for "more affordable" vehicles, saying these new cars would be made on the same "same production lines" as existing Teslas.

Seth Goldstein, an analyst at Morningstar Research Services, said he believes these lower-priced vehicles will be built on existing Tesla platforms and priced around $35,000. "My understanding is, the initial plan was to make a cheaper car on a new platform," he said. "But Tesla realized they were falling behind in making affordable cars compared to the competition from China. ... So they've shifted strategy and are not investing heavily in building a new car."

After Reuters reported Tesla's abandonment of the Model 2 on April 5, Musk took to X that day to post that Tesla was planning to launch a "robotaxi" in August. The event was then delayed to October and held at a film studio near Los Angeles. The event did not satisfy investors and caused Tesla's share price to fall 9% the following day.

Some investors felt that Musk's unveiling of the Cybercab, the demonstrated self-driving "Robovan" concept car, and the humanoid robot all lacked concrete product details. Tesla has not revealed whether the Cybercab will utilize new autonomous driving technology beyond the company's existing FSD (Full Self-Driving) feature already in use on its current vehicles. As it stands, Tesla's current models do not yet achieve full self-driving and require humans to remain highly vigilant.

The target market for the Cybercab remains unclear. Its sports car design and two-door, two-seater configuration are nearly nonexistent in the American car market, confusing some analysts; they had expected the robotaxi to have larger dimensions to accommodate passengers and luggage.

During the October earnings call, Musk said the concept car was "optimized for autonomy" and would also be more affordable. "It's about a $25,000 car, so that's the $25,000 car," Musk said. "It just doesn't have a steering wheel and pedals."

Tesla and Musk did not respond to requests for comment.