Tony Sacconaghi, a renowned analyst at Bernstein consulting firm, says that Tesla is wrong not to develop a $25,000 electric car. The decision made by Elon Musk puts the company's growth potential at risk, growth that was set at a 50% for the next few years by the CEO himself. Beyond 2023 it would mean selling three million units in 2024, and almost five million in 2025; something that cannot be achieved with the current price offer, according to Sacconaghi.
News about the development of a C-segment compact car for Tesla was denied by Elon Musk during the latest financial results presentation, Q4 2021 shareholders call. Musk assured that they were not currently working on a $25,000 model; he even pointed out that this was actually the wrong question: “We're not currently working on a $25,000 car. At some point we will, but we have enough on our plate right now (…) It's actually the wrong question,” Musk said, responding to a question from an investor. He was referring to the fact that what really matters for him is making autonomous driving a reality, because at that moment "the cost of transport will be reduced, I don't know, by a factor of four to five."
The market research study firm Bernstein has just produced a report signed by one of its main advisers, Tony Sacconaghi, with which it wants to guide its investors to find the best locations for their money. In that report he basically collects Musk's statements and interprets them in the current context of his company: his conclusion is that it is "highly unlikely" that this sub-$25,000 model will hit the market before 2025, as Tesla is not working on any lower-priced products now listed in its offering. The Tesla Cybertruck, the new Tesla Roadster and the Tesla Semi already put a huge strain on company resources, that therefore cannot absorb anymore workload.
Sacconaghi points out that the decision "goes against Tesla's goal of driving the adoption of electric vehicles as quickly as possible." He assures that Tesla's unit sales will not grow more than 50% per year without the $25,000 model; meanwhile, Musk announced an ambitious objective for the coming years: to grow 50% year-on-year in vehicle deliveries, which will require an enormous effort in production. The study indicates that it will be very difficult to achieve that goal beyond 2023, since it would imply three million units in 2024 and almost five million in 2025.
In 2020 Tesla delivered 499,550 vehicles, a number that was doubled in 2021 with 936,172 units. Shanghai Gigafactory has been fundamental in this growth and in the company's turnover: a recent presentation by Tesla China on its economic results reveals that the company's revenue there has grown more than 100% in the last two years. On the other hand, compact and subcompact cars make up about 20% of the US car market. A lower-priced vehicle would expand Tesla's reach, thereby increasing its sales. The SUV and crossover market continues to grow steadily as well: the Tesla Model Y is beginning to catch up with the Model 3. Following this trend, Elon Musk wants the Model Y to be the best-selling vehicle in any category by 2022 or 2023.
Therefore, Tesla is concentrating on increasing Model Y deliveries, which means increasing production at Giga Texas and Giga Berlin. The units manufactured there will also be equipped with 4680 cells that promise a significant reduction in the cost of battery production. In short, Tesla has a lot of work ahead already, and that is without taking into account the development of the autonomous driving system (FSD or Tesla Autopilot), in which Musk is particularly interested and for which he assures that the company will make significant progress before the end of the year.
All images courtesy of Tesla Inc.
Nico Caballero is the VP of Finance of Cogency Power, specializing in solar energy. He also holds a Diploma in Electric Cars from Delft University of Technology in the Netherlands, and enjoys doing research about Tesla and EV batteries. He can be reached at @NicoTorqueNews on Twitter. Nico covers Tesla and electric vehicle latest happenings at Torque News.