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Tesla Cancels Low-Cost Car Plans Amid Chinese EV Competition

Tesla Cancels Low-Cost Car Plans Amid Chinese EV Competition

Investors were counting on Tesla’s long-promised cheap car to help it become a mass-market automaker. But the company has scrapped the plan, according to three people familiar with the subject and company messages seen by Reuters. Sources say that the carmaker will keep working on self-driving robotaxis on the same small-vehicle platform. The move means giving up on a long-term goal that Elon Musk, CEO of Tesla (TSLA.O), has often said is the company’s main mission: making electric cars more affordable for everyone. In 2006, his first “master plan” for the company was to make high-end cars first and then use the money made to pay for a “low-cost family car.”

Since then, Musk has kept investors and customers promised this kind of car. Musk told investors in January that Tesla planned to start making the affordable model at its factory in Texas in the second half of 2025. This was in response to an exclusive story from Reuters that said the company had made these plans. The type 3 sedan, which is Tesla’s least expensive type right now, costs about $39,000 in the US. The entry-level car, which is no longer made and is sometimes called the Model 2, was supposed to cost around $25,000.

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Tesla did not answer when asked for a statement. After the news came out, Musk wrote on his X social media site, “Reuters is lying (again).” He didn’t point out any specific mistakes. After Reuters’ story, Tesla shares fell more than 6%, but some of the loss was made up for after Musk’s post. At the end of the day on Friday, the stock was down 3.6%. Soon after, Musk wrote on X, “Tesla Robotaxi unveil on 8/8,” which caused shares to rise again after the market closed.

Tesla Cancels Affordable Model 2 to Focus on Ambitious Robotaxi Project

This unexpected move comes as Chinese businesses making $10,000 in electric cars are challenging Tesla internationally. Driverless robotaxis may take longer and be more scientifically and legally challenging. Two sources say a large Tesla employee meeting revealed the Model 2’s cancellation. The meeting occurred in late February, according to one source.

That guy said, “Elon told us to go all in on robotaxi.” The third source said the project had been discontinued and that robotaxis will be manufactured under the current plans, albeit in far fewer numbers than for the Model 2. Reuters examined various company decision signals. One email on March 1 was from an anonymous inexpensive car program manager telling engineering staff to not tell suppliers “about program cancellation.”

A fourth individual familiar with Tesla’s intentions praised the company’s shift from affordable vehicles to robotaxis, Musk’s vision for transportation. The insider warned that a worsening economy could disrupt Tesla’s product ambitions. Any automaker must work hard to profit from entry-level cars. Since Tesla took so long to build Musk’s “dream,” it now has more competition in that price bracket.

Chinese automakers quickly built affordable EVs, gaining market share, economies of scale, and low prices that Western automakers cannot match. Tesla spent years building the costly electric pickup Cybertruck. Chinese electric cars (EVs) competed with Tesla as Musk ran SpaceX, Neuralink, and X, a social network he bought in 2022. Twitter lost money and advertising under Musk’s unsteady leadership, lowering its worth. The cheap Tesla model’s performance affects Musk’s sales goals. Musk predicted in 2020 that Apple would sell 20 million cars by 2030, twice as many as Toyota. How he’ll get there when Model 2 dies is unknown.

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According to two sources and company texts that Reuters looked at, Tesla called the project to make affordable cars NV91 inside the company and H422 when talking about it with suppliers outside the company. In messages to staff, the nameless Tesla program manager talked about ending the project using these code names.

People who received the notifications on March 1 were urged to discontinue H422/NV91-related activities. Many reasons for the idea’s cancellation were unknown, sources added. The boss thanked the engineers for their hard work in another message sent on March 1 and told them to write down what they had learned.

The message said, “I’d like to thank everyone for all their hard work and dedication to pushing the limits and putting together the best design possible given the strict guidelines we had to work with.” “We don’t want all of our hard work to be for nothing, so we must wrap things up and keep good records.” Talks regarding making cars cheaper were canceled, according to the messages. Two sources reported expert moves.

Tesla’s plans for robotaxis and how they will make money with them are still not clear. Musk has said in public that driverless taxis could become more popular than cars driven by people in the future regarding transportation. He has said that Tesla, the most valuable car company in the world, would be “worth basically zero” if it couldn’t fully self-driving. Self-driving cars can only be used in very limited ways on public roads in the U.S. and China right now, as an experiment.

Tesla’s Self-Driving Dreams Collide With Reality: Lawsuits, Investigations Cast Doubt on Musk’s Predictions

Musk has said for years that an autonomous car was just around the corner, which helped drive Tesla’s skyrocketing value. However, Tesla has yet to show that it can make one. There are lawsuits and probes against the car company because of accidents involving its Autopilot and Full Self-Driving systems, which do not fully drive themselves. Drivers who weren’t paying attention are to blame, according to Tesla.

Tesla Autopilot issues are among those that have garnered attention. Tesla faces another inquiry into how it estimates its cars’ driving range after Reuters reported last year that it had hacked in-dash range meters to produce rosy range estimates. After knowing for a long time that suspension and steering elements were faulty, the carmaker blamed “driver abuse” for their frequent failures, Reuters reported in December.

Experts and surveys say that Musk’s support for right-wing politics and divisive public comments have hurt Tesla’s reputation as a climate-friendly innovator. These things have also turned off some potential Tesla buyers.

The car company said on Tuesday that deliveries were down 8% year-over-year, just one day after BYD, its biggest Chinese rival, said that deliveries were up 13%. The news caused Tesla shares to drop 5%, adding to a drop of more than 40% since July of last year, which equals a market loss of about $400 billion.

Tesla’s market worth is $545 billion, surpassing Mercedes-Benz (MBGn.DE), Toyota, and Porsche combined. Tesla’s stock price has historically been based on future mass-market sales and driverless car sales, not current earnings.

Read More: Chinese Smartphone Powerhouse Xiaomi Challenges Tesla


Tesla and other global automakers are struggling because US and European EV demand growth is slowing and China is competitive. The affordable car project was terminated. Tesla believes the affordable car wouldn’t have been released until the second half of 2025 if it had gone ahead. However, BYD and other Chinese businesses already make very inexpensive EVs. Musk made a crucial decision that delayed Tesla’s launch. Tesla focused on the experimental Cybertruck instead of an inexpensive automobile after introducing the Model Y crossover in 2020.

Musk showed off a prototype of the boxy truck made of stainless steel in 2019 and said that it would cost around $40,000 to buy. The car finally came out last year, but the least expensive form of the truck won’t be available until 2025. It will cost about $61,000.
It has also been hard for the company to fix problems with production, especially with the truck’s cutting-edge battery technology. Musk wants to sell a lot of the car, but he told investors last fall that it would be “hugely difficult” to increase production and make money off of it.
“We dug our own grave with the Cybertruck,” he stated.

Around the same time, BYD’s sales of electric vehicles in China have gone from about 130,000 to more than 1.5 million. This doesn’t include its booming business in plug-in hybrids or its quickly growing exports.
BYD already has a lot of low- and middle-priced models, like the Seagull car, which costs less than $10,000. The Chinese car company now wants to sell that car abroad for more than twice as much, which is still less than the price Tesla wanted for the cheap car it was planning to make.

About Davie Bancroft

Davie Bancroft is an accomplished author with a strong focus on investment and the tech business landscape. With extensive knowledge and experience in these fields, he provides valuable insights into emerging trends and opportunities. Davie's writings explore the intersection of technology and finance, offering practical advice for investors and entrepreneurs. His expertise and analytical approach make him a trusted resource for those seeking to navigate the dynamic world of investments and tech startups.