Tesla Promises More Affordable Cars; Stock Jumps Over 12 Per Cent

Tesla said that it will utilise its existing factories to build new, more affordable vehicles as early as late this year

Tesla announced on Tuesday that it will utilise its existing factories to build new, more affordable vehicles as early as late this year. This decision postpones investments in new factories in Mexico and India in the near term, as reported by Reuters. The world's leading electric vehicle (EV) manufacturer aims to increase production by 50 per cent from 2023, reaching its current capacity of nearly 3 million vehicles, before investing in new manufacturing lines.

"This update may lead to less cost reduction than previously anticipated but allows us to prudently grow our vehicle volumes in a more cost-effective manner during uncertain times," the company said.

Tesla stock

Despite posting first-quarter results that fell short of Wall Street expectations, investors reacted positively to the decision not to build new models in new factories. Tesla shares surged 12 per cent in after-hours trading despite missing financial targets.

Tesla CEO Elon Musk hinted at the introduction of more affordable models that are set to begin production by early 2025. This aligns with Musk's earlier plan for the launch of a much-anticipated low-cost model, tentatively named Model 2.

Elliot Johnson, chief investment officer at Evolve ETFs, which manages almost $6 billion in assets, including investments in Tesla and other EV makers, commended Musk's approach. "It's a positive sign that he's not just rushing ahead with expansion plans, ignoring market challenges, and instead focusing on building a cheaper vehicle from the existing product line," Johnson said.

Earlier this month, Tesla had scrapped plans to launch the low-cost Model 2, which was supposed to be built in Texas, Mexico, and another location. Model 2 was expected to cost around $25,000 and help Tesla become a mass-market automaker.

Musk responded to reports of Tesla's cancellation of the Model 2 with a message on X (formerly Twitter) saying "Reuters is lying." He did not provide further details, and on Tuesday, he did not directly address the report.

Tesla instead discussed new models that seemed to be different from previously announced projects. In January, Musk had stated that Tesla aimed to launch the cheaper new model in the second half of 2025, describing it as having "revolutionary manufacturing technology" that would drive Tesla's next wave of growth.

Lars Moravy, Tesla's head of engineering, acknowledged on Tuesday that new manufacturing processes and production lines carry "some risks." As a result, the automaker shifted its approach to utilising existing facilities to produce low-cost vehicles quickly and efficiently.

Musk's India visit

Musk had been expected to meet with Prime Minister Narendra Modi on Monday to announce major investments in an auto factory to produce an affordable model. However, the meeting was postponed due to Musk's "very heavy Tesla obligations," with plans to reschedule for later this year.

Musk previously said that Tesla will "definitely" build a factory in Mexico, though the timing would depend on the economy and interest rates affecting vehicle affordability. Initial construction was expected to begin last year.

Analysts caution that Tesla faces challenges in expanding capacity while anticipating a slowdown in sales after years of double-digit growth rates. The company reiterated that its vehicle volume growth rate may be significantly lower in 2024 compared to 2023.

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