Tesla has unveiled plans to manufacture an affordable electric vehicle (EV) set to enter the market with a price tag of €25,000 ($26,838). This budget-friendly EV will be produced at Tesla's gigafactory near Berlin, marking a significant move towards expanding Tesla's product offerings. Shareholders in the United States are optimistic, anticipating the inclusion of this affordable model in Tesla's catalog for the US market.
The automotive industry is currently witnessing a race among manufacturers to produce lower-priced EVs tailored for the European market. Despite Tesla's dominance in the US EV market, with the Model Y projected to be the top-selling vehicle globally in 2023, the introduction of an affordable Tesla model has the potential to contribute significantly to the company's growth. CEO Elon Musk made this announcement during a visit to the Tesla factory in Gruenheide, where he engaged with staff and shared the company's vision for an accessible EV.
The Gruenheide Gigafactory, which currently produces the Tesla Model Y, holds the distinction of being Germany's and Europe's best-selling EV. Tesla's strategic move to target a middle-income mass market aligns with the company's overarching goal to increase vehicle deliveries to 20 million by 2030.
Tesla's stock performance has been subject to fluctuations, reflecting uncertainties surrounding future sales and profits. However, recent positive news for the company includes British energy company BP's announcement of a $100 million investment in Tesla fast chargers. This investment is part of BP's plan to expand its "bp pulse" network in the United States, highlighting the growing significance of charging infrastructure to support the widespread adoption of electric vehicles.
Before these recent announcements, Tesla appeared to be facing challenges to its dominance as new and innovative electric vehicle (EV) models entered the market. Delays in the production of its futuristic pickup, the Cybertruck, seemed to be impacting the company's confidence, especially as competitors' offerings were reaching the market and receiving positive reviews. Notably, the F-150 Lightning electric pickup truck won the prestigious 2023 MotorTrend Truck of the Year award.
In its early years, Tesla focused on offering premium EVs to generate profits, with the eventual goal of expanding into the production of mass-market models. This strategy proved successful, and over the years, the Roadster, Model S, and Model X were complemented by the more affordable Model 3 sedan and the Model Y small SUV. The introduction of an affordable EV aligns with Tesla's strategy to broaden its product lineup and appeal to a wider audience. In September 2022, a group of aides presented a pitch to Elon Musk, suggesting the production of an affordable EV alongside the robotaxi that Musk envisioned. They argued that an affordable car could play a crucial role in helping Tesla achieve its overarching goals.
While Tesla has often aimed to become a true mass-market brand, General Motors (GM) became the first full-line US manufacturer to bring a long-range, affordable EV to market with the 2017 Bolt EV. The competition in the EV market has been growing, and heading into the 2023 Tesla Investor Day, analysts were particularly intrigued by the possibility of an affordable Tesla EV. Many saw it as key to expanding the company's appeal, fending off increasing competition, and advancing the global transition towards zero emissions. However, at that time, no announcement regarding an affordable Tesla EV was made. The recent unveiling of plans for a €25,000 ($26,838) EV in Europe represents a significant development in Tesla's strategy to address the evolving landscape of the EV market.
As of now, Tesla's Model 3 sedan stands as the least expensive car in Germany, starting at €42,990. However, Tesla faces challenges in Germany beyond pricing competitiveness. The country's high wages and energy costs make it an expensive location for manufacturing. The Gruenheide factory, where Tesla produces the Model Y, has encountered various issues, including environmental concerns related to forest clearing, water usage challenges, and tensions with labor unions. Recent requests from regional officials for further information on Tesla's expansion plans indicate ongoing scrutiny of the company's adherence to nature conservation laws.
The move towards manufacturing more affordable models in Germany aligns with Tesla's broader strategy. It raises questions about whether Elon Musk's initial desire for Tesla to be perceived as a premium car company delayed the exploration of more budget-friendly models. Musk discussed in 2022 that the company had not yet mastered the necessary technology for affordable EVs. However, a source revealed in September that Tesla was on the verge of perfecting an innovation that would enable the die-casting of nearly the entire underbody of an EV in one piece. This advancement is expected to expedite production while reducing costs.
The decision to announce the production of an affordable EV at the Gruenheide factory, which houses Tesla's giga-press technology, aligns with the company's commitment to manufacturing EVs more cost-effectively with fewer parts. Traditional cars typically require around 400 parts, impacting profitability. Utilizing a single large frame that combines the front and rear sections with the middle underbody, where the battery is housed, could enable the production of the new, smaller EV with an estimated retail price of around $25,000. This approach represents a significant step forward in Tesla's manufacturing capabilities and its strategy to offer more affordable electric vehicles to a broader audience.
If Tesla successfully implements the innovation to die-cast nearly the entire underbody of its electric vehicles (EVs) in one piece, it could potentially slash its cost of manufacturing by up to 50%. This significant reduction in manufacturing costs could exert tremendous pressure on other automakers, compelling them to respond or risk being unable to compete in the evolving EV market.
According to JATO Dynamics analyses, Chinese EV manufacturers are surging ahead of their Western counterparts in producing affordable EVs. The average retail price of an EV in Europe during the first half of 2023 was over 65,000 euros, while in China, it was significantly lower at 31,000 euros. Chinese brands such as BYD, Nio, and MG are actively looking to extend their market presence in Europe by offering more affordable EV options.
In addition to the potential impact from Chinese manufacturers, traditional Western automakers are also entering the affordable EV market. Volkswagen AG, for instance, is reportedly aiming to release a battery electric vehicle priced at €25,000 or lower by 2025. Other examples include Stellantis NV's Citroen ë-C3, starting at €23,300, and Renault's Dacia Spring, which begins at €20,800 in France.
The timing of an affordable Tesla would be crucial, especially as European buyers are becoming more budget-conscious amid economic challenges. Germany, as the largest economy in the region, has experienced a stagnant gross national product (GNP), further exacerbated by consumers grappling with the fallout of the energy crisis. Many owners of internal combustion engine (ICE) vehicles may currently lack the upfront cash to transition to an EV, and some may not prioritize a cost-of-life analysis when making vehicle purchases. An affordable Tesla in the European market could, therefore, cater to the needs of a broader audience and align with shifting consumer spending patterns.
While the purchase prices for electric vehicles (EVs) often remain higher than those of comparable internal combustion engine (ICE)-powered cars, the overall cost of ownership over a 5- to 10-year lifespan tends to favor EVs. Factors such as lower maintenance costs, reduced fuel expenses, and potential government incentives contribute to making EVs a more cost-effective choice for many buyers in the long run.