Tesla Teases An Even Cheaper Mass-Market EV

Tesla set out its roadmap to deliver a cheap mass-market road vehicle more than ten years ago. The idea in the late 2000s was to produce a premium sports vehicle, then a high-end luxury saloon, and then use that revenue to build a cheap electric vehicle (EV).

The company sort of succeeded, but not as spectacularly as Elon Musk originally hoped. The original Roadster and Model S certainly fit the bill, but the Model 3, at over $40,000 was still a premium offering, though significantly cheaper than its forebears.

Now, though, the company is taking a second look at the economics of cheap electric vehicle production. The price of batteries continues to fall. And Tesla has already built out much of the plant, systems, and machinery it needs to scale manufacturing even further. A few more Gigafactories and slightly better battery chemistry, and we could see prices in the $20,000 range, which would be remarkable.

Musk tends to walk a tightrope between hype and reality. While the entrepreneur does impossible things, he also promises even more impossible things. A fully autonomous car would be available by 2018, he said. It's now 2022, so where is it?

Musk, though, appears to be learning from his hype train habit. He loves to shorten timetables and get things done quickly (usually by working with people seven days a week). But this time, he was a little coyer in his response. He didn't want to give an exact date but did confirm that the new vehicle was under development.

From what reporters can gather, the new vehicle is still in the early design stages. Musk hinted that Cyber Truck and Semi design was over so the team would now be moving on to creating the blueprints for the new affordable car. Given Tesla's regular production ramp, we can expect to see this budget vehicle by early 2025, but it could come earlier than that if it can use the Model 3 production line.

Musk said that the new car would sell more than the rest of Tesla's vehicles combined. And that would be a good thing for the company's mission.

Tesla, Musk says, is all about the transition to sustainable energy. The purpose of the car company is to switch what was once a fossil fuel-powered sector into one run-on battery, preferably powered by solar panels.

Tesla might be the biggest car company in the world by market cap, but it is still a long way from its goals. The world produces around 100 million ICE vehicles. Currently, Tesla produces less than 2 million EVs per year, with all other car markers adding another 1 to 2 million to that figure. Clearly, there's a long way to go.

How Much Will It Cost?

This new vehicle, though, could become the new Ford Mondeo in Europe, or Toyota Camry in the U.S. It needs to be the type of car that everyone wants to drive because of the economics.

Musk says that it should be around half the cost of vehicles produced on the Model 3/Y platform. That would put it in the $25,000 range if you add the effects of inflation into the mix.

The bad news is that still probably wouldn't incentivize everyone to make the switch to EVs. That price is about average for new mainstream vehicles. The good news, though, is that it will open up EVs to more of the market, and people will need to make fewer compromises when looking for affordable alternatives.

In many ways, Tesla is benefiting from the fact that legacy car companies are doing such a bad job of developing compelling electric vehicles. They'd love to be at the forefront of the industry, like Tesla, producing cheap cars capable of going 350 miles on a single charge. But the truth is that many are still unable to do so, thanks to their capital structure. Most are just cobbling together EVs to fill a niche market segment, rather than fully dedicating themselves to their production.

Tesla, though, needs to be careful. The Model S came out ten years ago, and despite a small refresh in 2015, the vehicle remains largely unchanged. Just because no other firm has successfully challenged it to date, doesn't mean that that won't happen in the future.

All of the firm's other vehicles remain essentially unchanged since release while mainstream manufacturers continue to update their offerings and entice consumers.

Furthermore, just because the costs are 50 percent lower, that doesn't mean that the vehicle will be half the price at the retail level. That will depend on other factors, including distribution.

With that said, though, this mission does seem like one that Musk could pull out of the hat. The economics, capital, and technology are probably in place to make it a possibility right now. A $25,000 electric vehicle is something that around half of Americans could probably afford, maybe more, opening up the market to new and exciting segments.

People on lower incomes will also benefit from the availability of EVs in the used car market. Warranties for used cars of this type tend to be better because of how reliable they are. Just as second-hand Model S and Model 3 Teslas retain much of their value, the same might be true of the new cheaper brand.

Whether Tesla has the capacity to ramp production in the way it wants, though, remains to be seen. Currently, the carmaker has many of its biggest factories in China, capable of churning out around 750,000 units per year. But it also needs to build out capacity in Europe and, perhaps, Australia, if it wants to offer lower prices globally.

The new car will likely feature the company's auto-pilot technology and vehicles will come with the ability to update. For this reason, they could be economical for firms looking to offer autonomous ride-share technology in the future, a market worth an estimated $10 trillion by ARK Invest.

(Disclaimer: Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)