Tesla is working up a new entry-level battery-electric vehicle that would slot in under the brand’s current Model 3 sedan, according to several sources.
The move appears to mark an about-face by CEO Elon Musk who, last January, indicated Tesla put on hold plans to develop a new entry-level model because it had “enough on our plate right now.” But it reflects the fact that several key competitors, including General Motors and Honda, are taking aim at lower-priced market segments that could attract a generation of buyers currently priced out of the EV market.
The new EV is expected to be an all-electric sedan dubbed the Model 2. But there have also been reports that an entry SUV package could be added using the Model Q badge, as well.
Today’s EVs aren’t cheap
Currently, the lowest-priced Tesla is the Model 3 which starts at $48,490. It’s a relatively short-range offering, with the Model 3 Long-Range starting at $57,490. Fully loaded, a Model 3 can top $72,000.
The compact Model Y crossover, now the automaker’s best-selling product line, starts at $64,990. Well-equipped versions push into the mid-$80,000 range.
When the Model 3 debuted in 2017, CEO Musk promised to bring out an entry version that would dip as low as $35,000. As the current figures reveal, Tesla hasn’t come close. If anything, the automaker initially focused on well-equipped versions of the sedan — and the SUV that followed — to maximize profit margins.
That’s not a strategy unique to Tesla, of course. And it explains why the average battery-electric vehicle sold in the U.S. in recent months has averaged about $66,000, according to Kelley Blue Book. That’s about $18,000 more than the typical new gas-powered vehicle, KBB reported.
Only a handful of entry models
The numbers are a bit misleading, however, as there are few entry-level models for EV buyers to choose from. Only a handful of current offerings, including the Chevrolet Bolt EV and the shorter-range version of the Nissan Leaf, start below $30,000.
But industry analysts like Bank of America’s John Murphy, believe there is a significant potential market at the low end. Chevy hopes to gain traction when it launches the new Equinox EV at a base price in the low $30,000 range. And parent GM and Honda have formed a new joint venture aimed at bringing even lower-priced models to market.
Murphy and other analysts believe Tesla could be well-positioned to deliver a base model. It has aggressively addressed costs with its current line-up — helping it deliver some of the industry’s highest margins. While it might have to trim those profits a bit, it would help lock in potential first-time buyers who could later be moved to more expensive product lines, several observers told TheDetroitBureau.com. It’s the same strategy the industry has long relied on: using affordable base products to build up brand loyalists.
Tesla, which no longer operates a public relations department, did not return a request for on-the-record comments about the reported Model 2. But various company sources and industry observers provided some hints about what may be in the works.
How low can Tesla go?
Tesla is clearly targeting something under $35,000, and it’s possible it might even start at $25,000. It’s widely believed that Tesla wants to drop manufacturing costs for the Model 2 to less than $20,000 per vehicle. That would still yield some of the best margins in the business.
This will not be a stripped-down Model 3, TheDetroitBureau.com was told repeatedly. It will be smaller — though still offer a reasonable amount of interior space thanks to the skateboard-style platform that will be used.
Sources conflict a bit about the body style for the Model 2. Some expect a sedan or hatchback, others foresee a crossover body which would be more in line with current market trends. CEO Elon Musk mentioned while traveling in Germany last year that they needed a hatchback to navigate the country’s narrow city streets, lending some to lean in that direction.
Cutting production costs
Tesla will achieve significant savings by using a new large-scale casting process for the underlying vehicle frame. This approach eliminates scores of individual stampings and other parts and slashes the number of manhours needed on the assembly line.
It’s quite likely the lowest-priced version of the Model 2 would also come with a lithium iron phosphate, rather than lithium-ion, battery pack. Tesla already uses this cheaper, albeit lower-range, chemistry for some products sold in the Chinese market.
The Model 2 is likely to be built either at Tesla’s recently opened plant in near Austin, Texas or could be introduced at one of the other new factories Musk has talked about. There is no room at the original Tesla plant in Fremont, California which is also struggling with bottlenecks that have made it the highest-cost facility in the company’s expanding manufacturing network.
How fast Tesla wants to bring the Model 2 to market is a matter of debate. In January 2022, Musk said work on what he described as “a $25,000 car” was being put on hold because the company simply had “enough on our plate right now.” But with more and more competitors gunning for entry buyers, it appears the project has been reactivated.
That said, Tesla’s product development team really is busy. It appears to finally be getting the long-delayed Cybertruck pickup, Musk now saying it will be in production late in 2023. But the carmaker is also working on the also-delayed Roadster and Semi truck. And it has plenty of other distractions to deal with. Barring some surprise, few observers expect to see the “$25,000 car” go on sale before 2024. And with Tesla’s history of missing production dates, it could push out even later in the decade.