$40K Tesla Model 2: the game changer?
REVOLUTION OR PRODUCTION HELL V2.0? WHY ELON’S BETTING THE HOUSE ON VOLUME
WE’RE VERY very far along on our next-generation low-cost vehicle,” said Elon Musk in Tesla’s fourth quarter earnings call, spruiking what we’re calling the Model 2 – a vehicle he claimed would “achieve a unitsper-minute level that is unheard of in the auto industry”.
But Project Redwood, as the affordable smaller Tesla is known within the walls of Austin, may not be quite the slam dunk many have thought it would be. Industry analysts have downgraded its production forecasts for 2026 and have pointed to EV market stagnation in 2023 that, as Morgan
Stanley has claimed, could spark “continued negative revisions at Tesla to ultimately trigger price increases to protect margin.”
Despite the gloomy predictions, it’s worth pointing out that despite Tesla’s recent share-price slide, the company still built 1.85 million cars last year – an increase of 35 percent versus the year before. What’s more, the political situation in the US is a win-win for the brand. President Biden has opened a firehose of funds to protect EV production, effectively insulating the process from foreign influence. His putative 2024 presidential rival, Donald Trump, has promised a 100 percent tariff on imported vehicles.
Promises and aspirations in this corner of the industry seem distinctly mutable. Elon Musk has claimed that Tesla will build 40 million Model 2s over its lifespan and will make money on every one of them. This from the guy who once famously admitted that “building cars is hard.”
Musk’s magical inflection point comes when Tesla has a fleet of around 10 million cars. At that scale, he claims the company could effectively sell its cars for cost and still realise a profit from income streams such as the Supercharger network, Full Self Driving subscriptions, emissions credit trading, energy products, insurance services, software licensing income and over-the-air updates. The Model 2 is the scale play to step towards that capability. But will it?
While Musk claims he’s
“optimistic” about building the first car next year, he’s been optimistic about a lot of products that have yet to appear. And Model 2 is a radical departure from what’s gone before.
The so-called ‘Unboxed’ production process is hoped to halve both build costs and production time. This streamlining of the production process is based on open ‘gigacastings’, with the seats mounted directly to the underfloor battery pack, and only at a late stage in the process is the al fresco vehicle mated to its pre-painted bodyshell. It’s undoubtedly a gamble.
Tesla had to learn to become a volume car manufacturer and the process has been painful. Now it’s looking to revolutionise the business and attempt something entirely new. Elon Musk never meant for Tesla to mass-produce cars on a global scale. Like Apple’s relationship to Microsoft, Tesla has gradually morphed into the establishment big player that these once-renegade businesses originally ridiculed.
The Model 2 is the make-or-break product and 2027 will be the year when we discover whether the gamble has paid off.