Elon Musk has not forgotten the big disappointment of investors and Tesla fans at the end of the electric-vehicle leader's Investor Day on March 1.
That day, Tesla stock ended the trading session at $202.77. But the next day, after Musk and his lieutenants gave their presentations, Tesla stock dropped almost 6% to $190.90.
Many investors, analysts and fans had hoped the billionaire would make an announcement about a $25,000 Tesla car. But instead they attended a course of several hours on the development of electric vehicles and the battery in particular. It was called Tesla Master Plan 3.
Two and a half months later, Musk seems to want to make amends. The Tesla CEO suggests that the carmaker is working on not one but two $25,000 vehicles.
'We Are Actually Building a New Product': Musk
"People always want to know what our next product is," the chief executive said during the annual meeting on May 16 in Austin. "I just want to emphasize that we are actually building a new product; we are actually designing a new product."
He continued: "There are two new products that I think you will be very excited about. And both the design of the products and the manufacturing techniques are head and shoulders above anything else that is present in the industry."
These two vehicles will be the first of a new vehicle generation to be manufactured on the new and more efficient production platform. The next-gen platform enables a 40% smaller manufacturing footprint in the factory and cuts costs in half, the company said last March.
Musk did not give a launch schedule for these vehicles but said they would be affordable. They will also bring Tesla closer to its goal of producing 20 million vehicles a year by 2030 and make inroads into emerging markets like India.
"That will probably make an excess of 5 million units a year of these two models combined," the tech mogul promised.
Tesla has produced 1.37 million cars last year.
The news has excited Tesla investors, who for many months have been calling on the group to develop a low-cost vehicle in order to maintain its leadership.
"There are not one but two new $25K next gen vehicles being developed with a combined incremental demand of 5M units," an enthused Gary Black, one of Tesla's most vocal investors, said on Twitter. "Our guess a hatchback (like Corolla) and baby CUV (RAV4) that should strike fear in competitors’ hearts."
Volkswagen and BYD Are Ahead
The competition is already working on electric cars around or under $25,000. Volkswagen has said that it was developing an electric car at 25,000 euros, ($27,000) while China's BYD, the world leader in clean vehicles -- EVs and hybrid cars -- recently unveiled an electric vehicle at $11,000.
For many experts, at least one of the vehicles is going to be the Model 2, with a suggested retail price -- the price at which the manufacturer recommends dealers sell a vehicle -- of $25,000.
A $25,000 car would allow Tesla to reach 80% of the automotive market, which currently escapes the Austin group.
"We expect Model 2 15% shorter, 30% lighter and 25% smaller battery than Model 3," NewStreet Research analyst Pierre Ferragu said last February.
The analyst, who is a Tesla bull, explained that the Model 2 makes sense for Tesla even from a cost perspective. It would cost less to develop and produce, which would justify its price of $25,000.
"We expect Model 2 [to be] 37% less expensive to build than Model 3. Half the difference derives directly from the car being smaller, the other half mostly from design, architecture, and manufacturing innovations."
The Model 3 is Tesla's current entry-level vehicle, base-priced at $40,240.
One difference between the Model 3 and the envisioned Model 2 is that the cost of labor is $2,400 for the Model 3 and just half that for the Model 2, Ferragu has calculated.
In total the manufacturing costs of a Model 3 amount to $8,500, against $5,100 for the Model 2, said the analyst.
The Model 2 would be a direct competitor to the Toyota (TM) Corolla, which has a starting price of $21,700, according to the Japanese carmaker's website.
