Tesla pledges to halve production costs as Elon Musk sticks to plans for affordable EVs under wraps

Tesla will cut assembly costs for future generations of cars in half, engineers told investors on Wednesday, but Chief Executive Elon Musk did not disclose when he will launch a highly anticipated affordable electric vehicle.

Shares fell more than 5% after hours following the company’s Investor Day from its Texas headquarters.

More than a dozen Tesla executives led by Musk discussed everything from a white paper plan for the world to embrace sustainable energy to the company’s innovation in managing its operations, from manufacturing to service.

The presentation featured an array of senior engineers, including new global production chief Tom Zhu, a nod to Tesla’s attempt to show the depth of its executive bench beyond Musk, the face of the company.

But there were no details on when the next-generation cars would be launched and what models would be offered.

Musk was expected to lay out a plan to make a more affordable electric vehicle (EV) that would broaden his brand’s appeal and fend off the competition.

Executives have said Tesla’s next-generation platform will include more than one vehicle built in standardized factories, but Musk brushed off questions about which models are in the lead.

Tesla CFO Zach Kirkhorn and others have underscored their commitment to lowering production costs.

Kirkhorn estimated that Tesla needed to invest six times more than to date to meet its long-term goal of increasing production to 20 million vehicles per year by 2030, a 10-fold increase in current capacity. The bill could be $175 billion (about Rs. 1,44,47,562 crore), he said.

The next stage of investment will be a new Tesla factory in northern Mexico, Musk said, announcing the first factory outside the United States, Germany and China.

Musk did not comment on plans for a revamp of the Model Y sedan next year, called Project Juniper which Reuters reported in a report on Wednesday, or a revamped version of his Model 3 sedan – a project named Highland which Reuters said , will go into production in September.

Design chief Franz von Holzhausen says the Cybertruck pickup will arrive this year.

Mass market

Winning the mass market is key to Tesla’s annual production target, which is greater than the combined output of the two biggest automakers – Germany’s Volkswagen and Japan’s Toyota.

It would also represent a sales volume for Tesla alone of about a quarter of total global car sales last year.

Musk said the key to boosting Tesla’s sales volume would be lower prices for consumers, adding that Tesla’s discounts offered this year have fueled demand.

“People’s desire to own a Tesla is extremely high. The limiting factor is their ability to pay for a Tesla,” Musk said.

Tesla is the most valuable automaker, but its stock has evolved tremendously. Stocks are down about half from their peak in November 2021, but have rebounded more than 60% this year.

Musk said Tesla might need just 10 models, which at target production would be 2 million sales per year for each model line. By comparison, Toyota sells just over a million Corollas per year worldwide.

Tesla already has a lead over its rivals in making electric vehicles for profit. Chief engineer Lars Moravy said the company plans to build its next-generation vehicles for half the cost of the current Model 3 or Model Y.

Moravy described a production process for future electric vehicles that he called a “boxless” model of assembling sub-assemblies to reduce complexity and production time.

Tesla executive Peter Bannon gave an example of how the company uses data to cut costs. Customer data showed that Tesla owners weren’t using the sunroof, he said, “so we removed it.”

High-profile Tesla investor Ross Gerber tweeted that the presentation amounted to a “huge tease” about the next-generation vehicle. “It’s happening. They’ve got it all figured out. 50% less construction costs. That would net you a $25,000 to $30,000 electric vehicle!”

Tesla has outperformed the industry in recent years, rapidly increasing deliveries despite the pandemic and supply chain disruptions.

But Tesla has lowered prices in recent months to boost sales, which have been pressured by a weak economy and growing threats from rivals in the United States and China.

Tesla will also have to improve its battery technology, which Musk called a “fundamental limiting factor” for the transition to sustainable energy and more affordable cars.

Tesla is struggling to ramp up production of advanced batteries, called 4680s. Executives said Wednesday it was likely they could reach volume production this year, but added they were still testing two different production processes. .

© Thomson Reuters 2023