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Finally, Tesla has revealed plans to manufacture an affordable EV. The vehicle will enter the market as a €25,000 ($26,838) EV produced at Tesla’s gigafactory near Berlin. Shareholders in the States are breathing a collective sigh of relief, inferring that the US market will soon participate in the company’s catalog expansion.
The quest is on across automakers to produce lower priced EVs for the European market. While Tesla is still selling more EVs than the rest of the market combined in the US and the Model Y is likely to be the top selling vehicle in the world in 2023, an affordable Tesla has the potential to help the all-electric car company reach its 50% CAGR target, which it has been lagging on.
CEO Elon Musk made the announcement about their intention to produce an affordable EV as he visited the Tesla factory in Gruenheide last week and chatted with staff. The Gruenheide Gigafactory currently produces the Tesla Model Y, which is indeed Germany’s and Europe’s best selling EV.
Reaching a middle-income mass market is essential to the company’s stated objective to increase vehicle deliveries to 20 million by 2030. Tesla shares have been on a proverbial roller coaster. Much of that is a result of a swaying outlook in terms of Tesla sales and profits in the years to come.
One recent news item lifting the company up is that British energy company BP announced it will spend $100 million buying Tesla fast chargers to build out its “bp pulse” network in the US.
Prior to these announcements, Tesla’s dominance had seemed to be eroding as new and innovative EV models entered the market. The production delays on its futuristic pickup, the Cybertruck, seemed to be taking a toll on company confidence, since competitors’ offerings were already reaching market and were being well-received. The F-150 Lightning electric pickup truck, for example, won the prestigious 2023 MotorTrend Truck of the Year award.
When Tesla first emerged as a viable automaker, it was all about offering premium EVs which would create a profit and then open up possibilities for production of mass market models. That strategy worked, and a decade or so later the Roadster, Model S, and Model X were joined by the Model 3 sedan and the Model Y small SUV. An affordable EV would further expand the company’s catalog and appeal to new audiences. In September 2022, a group of aides made a pitch to Musk: build the robotaxi Musk so dearly wanted on the same assembly lines as a $25,000 car. They offered data that an affordable car could help Tesla reach its goals.
So often, Tesla’s goal seemed to be to become a true mass market brand. But GM became the first full-line US manufacturer to bring a long-range, affordable EV to market with the 2017 Bolt EV. (I purchased a used Bolt for my summer place, and, while it’s not as high tech as our Model Y, it is really a very nice vehicle.) Going into 2023 Tesla Investor Day, an affordable Tesla EV had captured most analysts’ imaginations. It was seen then as the key to broadening the company’s appeal, heading off growing competition, and continuing the world on the path to planetary zero emissions. But no such announcement was forthcoming.
Right now, the Model 3 sedan is Tesla’s least expensive car in Germany, retailing from €42,990. Being competitive with lower priced vehicles is only one problems that Tesla faces in Germany. It’s an expensive place to manufacture, due to high wages and energy costs. Its Gruenheide factory has simmered with issues from environmental concerns with forest clearing, to its water use, to labor union tensions. Just over a month ago regional officials asked Tesla to submit further information on how its expansion plans would adhere to nature conservation laws.
It’s All in the Innovations, Baby
Was it a desire to be a premium car company that kept Tesla CEO Elon Musk for the longest time from venturing into more affordable models? Or was it, as he discussed in 2022, that the company had not yet mastered the necessary technology? Reuters says a source divulged in September that Tesla was nearly done perfecting an innovation that would allow it to die cast nearly all of the underbody of the EV in one piece; that step forward would expedite production while lowering costs.
The announcement at the Gruenheide factory makes sense, as it is home to Tesla’s giga-press technology, which the company has said will enable it to manufacture EVs more cheaply with fewer parts.) The 400 parts that are needed in a conventional car do a number on profitability.) A single large frame — combining the front and rear sections with the middle underbody where the battery is housed — could be used to manufacture this new, smaller EV that will retail for around $25,000.
As CleanTechnica’s own Steve Hanley mused, “If Tesla can get this right, its cost of manufacturing could be slashed by up to 50%. That, in turn, will put tremendous pressure on every other manufacturer to respond or find themselves unable to compete.”
What’s the EV Marketplace Like for Regular Folks?
JATO Dynamics analyses indicate that Chinese EV makers are accelerating ahead of their Western counterparts in their ability to make affordable EVs. The average retail price of an EV in Europe in the first half of 2023 was over 65,000 euros as compared to 31,000 euros in China. Chinese brands such as BYD, Nio, and MG have their eyes on Europe to extend their EV market hold.
Moreover, it’s been all over the news that Volkswagen AG is looking at 2025 to release its own €25,000 or cheaper battery electric vehicle. Then there’s Stellantis NV’s Citroen ë-C3 starting at €23,300 and Renault’s Dacia Spring, which starts at €20,800 in France.
As Bloomberg suggests, an affordable Tesla would be timely as European buyers rein in their spending. Germany, which is the region’s biggest economy, has had a stagnant GNP, intensified as consumers attempt to manage the fallout of the energy crisis. A lot of ICE vehicle owners either don’t have the upfront cash to buy an EV right now, or they don’t ascribe to a cost-of-life analysis when purchasing a vehicle.
Purchase prices for EVs still tend to be substantially higher than those of comparable internal combustion engine (ICE)-powered rides. However, once costs over a 5- to 10-year lifespan of a new car are factored in, EVs will generally emerge as significantly cheaper than ICE vehicles for many buyers.
No date has been released when production of the affordable Tesla will begin.
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