Now it's official: Tesla plans to start production of its next-generation electric vehicle at its Texas factory in the second half of 2025, and Musk himself has announced that there will be a sharp slowdown in sales growth this year.
But Tesla shares fell by 6% for another reason: Musk underlined that starting production of the new vehicle would be more challenging than expected: “It will be necessary – he explained – an enormous amount of new technology to arrive at a system of revolutionary production,” a clear sign that any boost to Tesla's flagging growth pace will take time.
The “new vehicle” we were talking about is a smaller crossover than the Y, which is crucial for the company, which is losing share to cheap electric cars like those produced by China's BYD.
“I am often optimistic about launch times. But our current schedule shows that we will only start production of the long-awaited new model towards the end of 2025,” Musk told analysts during the earnings press conference. But not only that: “We will practically sleep on the assembly line,” he then explained, referring to the factory in Texas. Then if all goes well it will be the turn of Mexico and another plant outside North America, which will be decided during the year.
Not only that: Musk himself also warned shareholders of “significantly lower” sales growth this year, after reporting among other things a contraction in gross margin in the fourth quarter. Tesla has stated that it is between two waves of growth: one driven by the release of the Models 3 and Y in 2017 and 2020 respectively, and a second wave that will only begin with the next-generation vehicle platform. That's why analysts say Tesla will sell 2.2 million vehicles this year. That would be an increase of about 21% over 2023, but well below the long-term goal of 50% set by Musk about three years ago.
And if volumes are lower, Musk will likely cut prices, there is no other way, even though Tesla has warned that it is approaching the “natural limit” of cost cuts on its current vehicle lineup. We will see. But the challenge is also political and it is no coincidence that Musk has stated that “Chinese automakers will have significant success outside China. And that if there are no trade barriers, they will demolish most of the other car companies in the world.”
In any case, Tesla's challenge on prices has already caused an earthquake: Musk began cutting the prices of his cars at the end of 2022, triggering a price war that hit US rivals who have (all) slowed down the production of electric vehicles. And it's just the beginning.
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