TESLA MIGHT PIVOT TO ROBOTAXIS. DOES IT HAVE A DEATH WISH?
Much of Tesla's stock price was seemingly hinged on sales growth. Without an entry-level $25,000 car, where will the brand's growth come from?
If you ask CEO Elon Musk, today’s latest round of Tesla layoffs is meant to cut costs and get lean for the automaker’s “next phase of growth.” But lately, even the most optimistic Tesla fan has to be wondering what the hell that even is.
A few weeks back, Reuters rocked the electric car world when it ran an exclusive scoop: Tesla was abandoning the consumer-facing versions of its semi-rumored low-cost $25,000 EV project. Instead, the report alleged that the brand will focus on creating a Robotaxi version of that platform. Musk himself took to X (nee Twitter) to somewhat vaguely refute Reuters' claims. However, by the end of the day, Musk said that the Robotaxi would officially be unveiled on August 8.
The news sent analysts, investors, and EV advocates alike reeling, especially in the wake of a surprisingly disappointing Q1 result for the brand. Within a single afternoon, Tesla’s plans shifted entirely. It was good at making and selling cars, but now it wants to become an autonomous-driving taxi company—although it’s not even clear how today’s job cuts play into that. In a global market that’s thirsty for reasonably priced EVs, is that a wise idea right now?
“Tesla releasing a cheaper EV has been a long part of their strategy, and so abandoning it would be a major change in course,” BloombergNEF EV analyst Corey Cantor, told InsideEVs in an email. So much of Tesla’s stock price, both past and future, has been staked on its ability to continually grow its sales. Analysts and investors alike have been operating on the idea that Tesla was in the middle of a two-wave plan, with its first wave increasing volume. The brand’s low-cost platform would be its second wave, as it would produce literal millions of vehicles per year, allowing for any buyer to have an EV at an affordable price.
The focus instead seems to be on developing AI to make its Full Self-Driving technology live up to its name. Indeed, Musk has, in recent months, promoted the idea that Tesla is actually “an AI/robotics company” and not a car company, and he has long admitted that full autonomy is the difference between its sky-high valuation and being potentially worthless. This is part of why the rumored robotaxi is said to ride on the same platform as the $25,000 EV, a car that Musk didn’t even want to make, according to Walter Isaacson’s recent biography.
But now, that car might not be coming at all. That’s not great for a company that has had increasing concerns about its ability to sustain growth. Wells Fargo recently downgraded the brand in a clickable scathing takedown, calling it a “growth company with no growth.” Hard to see the lie there. “Elon Musk had mentioned being in between ‘two waves’, but this move would place Tesla in between two strategies: one that pursues higher volumes and another on higher margins,” Cantor said. “Tesla has been cutting prices to reach more of the mass market and not building out [the $25,000] car would suggest they are pivoting away from such an approach.”
An InsideEVs rendering of the purported Cybertruck-inspired $25,000 EV.
Cantor said he doesn’t understand how Tesla plans to grow with no real product in the pipeline. Even bullish investment and analyst firms viewed the cheaper Tesla as an inevitability, although Evercore was fairly skeptical about its promise to ramp up to more than a million units per year by 2025.
Tu Le, an analyst at China-focused Sino Auto Insights, agreed. “A 40K Model Y or Model 3 has limited appeal, for example, in India,” he wrote. “So, [without a $25,000 model] this leaves a huge 8-10 year hole in its business,” he continued. Even before the report, Le said that a budget "Model 2"-type vehicle that would have dropped in 2026 would have been too late for the brand. But Le also said that Tesla’s turncoat stance on cheap EVs is a tacit admission that it can’t compete with Chinese cheap EV options.
Tesla has admitted that it does not even plan on releasing an updated version of its best-selling model, the Model Y, this model year. Thus, aside from the arguably niche Cybertruck, and the somewhat frosty market reception to the updated Model 3, it has a whole range of models that are fundamentally old. Similarly, The Model 3 and Model Y are both fairly expensive products for a lot of global markets.
The presumptive Model 2, along with factory investments in places like India and Mexico, could put the brand on stronger footing with companies like China’s BYD. BYD has several models that are priced well under the starting point of the Model 3. Cars like the Seagull and Dolphin have allowed BYD to seriously pick up steam in markets outside of China.
Tesla’s apparent pivot to Roboxatis and going full in on autonomous driving, seems, as my colleague Tim Levin said, incredibly unwise. Making cars is hard; making self-driving ones has proven effectively impossible thus far. Even if we ignore the high number of complaints and even active litigation against Tesla for its implementation of Full Self-Driving, autonomous cars are really hard to make work. Apple gave up on its project to mass-produce such a car. Uber, Ford, GM, and Volkswagen have all pulled back autonomous driving efforts. Waymo is one of the few with self-driving cars consistently on the roads, but it still has yet to turn a profit.
By comparison, Tesla’s cars are profitable. It’s one of the few EV makers that can even pull that off. Even amid slowing sales, Tesla still moves far more fully electric metal than the efforts of some of the biggest legacy automakers, combined. If the $25,000 model ever was released, the model would have added a fresh product to the lineup while courting a wider subset of buyers that other EV manufacturers haven’t quite figured out how to reach. “Around 36% of 2023 US new car sales occurred below the price of the Tesla Model Y [with the IRA’s $7,500 tax credit] - and around Model 3 [without the tax credit],” Cantor said. Both inside and outside of the US, the car would likely be a hit.
But, where does Tesla go from here? It’s unclear. Cantor said that Tesla could continue to lower the pricing of its Model 3 and Model Y, but that would ultimately harm its margins. Also, the continual price drops have had devastating effects on residuals, harming the goodwill of current owners.
Of course, Reuters’ report said the budget platform will still be used for a fully autonomous “Robotaxi” model. But, will that create the volume that investors are expecting from the brand? Then, if we consider how problematic FSD has been, will the Robotaxi even be a functional, safe product? We don’t know. “Ultimately, we need more clarity on what their direction is,” wrote Cantor.
“I think fundamentally what has happened is, Tesla has always been about the stock price and not the core business. And I think that Elon Musk is smart in the sense, that investing in the car side of the business won’t solve the problem of its stock.”
- E.W. Niedermeyer
The problem is that this remains shrouded in mystery. Tesla critic, author, and journalist E.W. Niedermeyer that on some level, this could be Tesla’s way of getting investors and potentially the stock market itself to refocus and view Tesla as a tech company, not a car company.
“If you want to analyze Tesla as a maker and seller of cars, there’s really one choice – to invest in the product lineup…you invest and you build new cars. Instead, Tesla has chosen to go in this other direction and double down on Full Self Driving, ” Niedermeyer said in an interview. “I think fundamentally what has happened is, Tesla has always been about the stock price and not the core business. And I think that Elon Musk is smart in the sense, that investing in the car side of the business won’t solve the problem of its stock.”
Niedermeyer said that if Tesla were to officially release a cheap model, that could signal to the market that Tesla should be valued as a regular car company, rather than the tech-oriented entity it wants to be. “That would be the kiss of death for the stock,” Niedermeyer said.
Which makes sense. Musk’s personal brand is about Doing Big Things, like attempting to colonize Mars or positioning himself as a bastion of free speech, with X serving as his footsoldier. Manufacturing an otherwise run-of-the-mill EV is nowhere near as disruptive as the Silicon Valley tech company-turned-automaker aims to be.
The problem is that Tesla is a car company, whether he wants it to be or not, and his AI-powered autonomous driving dreams have little to do with consumers' desires to own a cheap EV.
Tesla is arguably the manufacturer with the most ability to get a good-selling, low-cost EV to market first—outside of China, anyway. If Tesla abandons its budget car project, it will leave a huge hole in the market for other companies that are fiercely trying to gobble up that market. Even Ford has pivoted away from a large EV project, putting its might behind a small EV platform meant to do battle against cheap car offerings from China. “Elon Musk is impulsive, so things could change,” Le said. Cantor agreed that the situation is new and things could change within weeks. Musk said that Reuters is “lying,” but it’s not entirely clear what they’re supposedly lying about.
But, if Tesla chooses to not make a cheap EV, it’s very clear that someone else absolutely will. And that idea should trouble anyone invested in Tesla's status as an EV market leader.
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2024-04-15T22:37:19Z dg43tfdfdgfd