July 24, 2024

Archie Wertheim

Technology Integration and Foundations for Effective Leadership

Elon Musk Says a Cheaper Tesla Model Is Coming in 2025 as Chinese Competition Intensifies

3 min read
Elon Musk Says a Cheaper Tesla Model Is Coming in 2025 as Chinese Competition Intensifies

A cheaper model of Tesla electric vehicle is coming late next year, CEO Elon Musk told investors today. If it launches on Musk’s ambitious timeline, it might arrive in time to help Tesla parry the growing might of Chinese EV makers.

The “next generation” compact vehicle Musk mentioned could represent the $25,000 entry-level EV teased in a recent biography of Musk by author Walter Isaacson. Musk didn’t mention a price point for the future vehicle on today’s call. But if Tesla hits that 2025 production target, the vehicle could become the cheapest EV on the US market and competitive with budget EVs offered by rival automakers in other countries. Tesla currently sells a base Model 3 for $35,100. Musk did not specify when customers might start receiving the new model.

The cost of EVs is a significant barrier to their further adoption. A recent global survey by the consultancy Deloitte found that, as high interest rates persist, cost is driving drivers’ purchasing decisions, especially in Germany, the US, and Japan. The total cost of owning an EV can sometimes be lower than for a conventional, gas-powered car because of savings on fuel and maintenance, but EVs are still pricier up front.The average US vehicle—including all drivetrain technologies—cost $48,800 in December, compared to $50,800 for an EV, according to Kelley Blue Book, an automotive research company.

Finding a way to lower the price point of EVs is also important to Tesla, which is in a global price war with other automakers that are going all in on EVs and threaten to unseat Musk’s company as the world’s top vendor of electrics. The Chinese automaker BYD delivered more EVs last fall than Tesla, though the US carmaker was ahead on annual deliveries. Chinese auto exports more than doubled last year, as the country sent more than 4 million vehicles abroad, according to a Chinese industry group. Protectionist trade policies mean Americans can’t buy cheaper Chinese-made cars domestically. But automakers including BYD are reportedly considering manufacturing in Mexico to avoid the heaviest tariffs.

On the investor call today, Musk signaled his respect for his rivals. “The Chinese car companies are the most competitive car companies in the world,” he said. “If there are not trade barriers established, they will pretty much demolish all other car companies in the world. They’re extremely good.”

Tesla last voiced plans for a “next-gen” vehicle during a March 2023 Investor Day presentation. Slides teased Tesla enthusiasts with images of cars draped with gray sheets. On the investor call today, Musk and other executives said the new vehicle would be made with “revolutionary” manufacturing technology but revealed no details of what that would involve.

Yet even as Musk announced the next-gen vehicle, he cast doubt on Tesla’s ability to produce it on schedule. The automaker often delivers vehicles—including the Cybertruck, Tesla Semi, and a “second generation” Roadster sports car—months and even years behind Musk’s initial deadlines. “I say things, and they should be taken with a grain of salt,” said Musk, who is notorious for his overly rosy product predictions. “I don’t want to blow your minds, but I’m often optimistic regarding time.”

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