Musk says a smaller, cheaper Tesla is planned

Tesla CEO Elon Musk said this week that the company plans to develop a new next-generation electric vehicle that “will likely cost about half the cost of the 3 and Y platform”. The news came as a surprise and requires some explanation.

What he said, what he didn’t say and who he said it makes for potentially confusing news.

The cost is not the price

First off, that doesn’t mean a $30,000 Tesla is coming anytime soon. That doesn’t rule one out, but it’s unlikely for several reasons.

Musk said the cost of the platform would be lower. This does not mean that the price of the car will be so low. The news is read by car buyers, who are worried about the list prices of new cars. But Musk was targeting investors, concerned about the cash flow of the company building them.

He was almost certainly referring to the cost to build the car, not its final price.

Tesla, unlike most automakers, controls its prices. The company sells its cars directly in some states and sells cars online in states where it’s not legal. That means there’s no middleman to negotiate the price of a Tesla — the price you see on the website is the price you pay.

But this price can fluctuate. For example, the company’s flagship Model S sedan cost $69,420 two years ago. Today it starts at $109,490. That’s nearly a 60% increase in two years.

Electric vehicles are all about the platforms

Electric vehicles (EVs) are built on platforms to a greater extent than gasoline-powered cars. Two electric vehicles from the same manufacturer can have almost all of their parts in common.

A rig is a collection of electric batteries, motors, suspension, and steering components, similar to a skateboard. Engineers scale them up or down to build vehicles of different sizes.

General Motors, for example, calls its platform Ultium. The Ultium platform is the basis for cars as varied as the $30,000 Chevrolet Equinox EV and the $300,000 Cadillac Celestiq ultra-luxury car. GM builds pickup trucks, SUVs and sedans on the Ultium platform.

Tesla currently has two production car platforms – one under its Model S sedan and Model X SUV and a second under its Model 3 sedan and Model Y SUV.

Musk revealed that the company is working on a third. “It will be smaller, to be clear,” he pointed out.

Tesla is the most opaque automaker

The news surprised the press because, at the end of 2021, Musk had denied that Tesla was working on a cheaper vehicle. During the company’s fourth quarter 2021 investor call, Musk said the company has halted plans to build a lower-cost model. “At some point, we will. We have enough on our plate right now. Too much on our plate, frankly,” he said.

Most automakers operate a public relations department to answer journalists’ questions. Tesla does not. Thus, we are often left waiting for investor events to hear from us. Musk’s denial was the last we had heard of plans for a cheaper Tesla.

Musk’s claims don’t always come to fruition

Finally, it should be noted that Musk’s opacity and explosive personality often lead to misunderstandings about what Tesla plans to do.

Musk isn’t shy about making outlandish claims. Last month, he took a lot of heat for claiming that the long-promised and much-delayed Cybertruck could also work as a boat.

More relevant to this discussion, at the 2016 unveiling of the original Tesla Model 3 prototype, Musk promised the car would be priced around $35,000. He would have done, briefly. When it arrived in 2019, Tesla listed a Model 3 on its website for $35,000. But he sold few and dropped the option from the lineup within weeks.

Today, that same car sells for $48,490.

What does all this mean?

So, will we see a Tesla for half the price of the current Model 3?

It’s unlikely, but a cheaper model than the current range is credible.

Economies of scale mean that prices for electric vehicles will come down as they become more popular and automakers build more of them. GM has already promised the Equinox EV around $30,000 for the 2024 model year. And remember, it shares a platform with six-figure cars.

Tesla has become America’s best-selling luxury automaker and a company with factories on three continents. It’s not as big as GM, but it’s big enough to take advantage of the volume to drive prices down over time.

A cheaper Tesla is entirely possible. But, if company history is any guide, it may take longer than expected, and Musk may make outlandish claims along the way.

Angela C. Hale