Tesla Refocuses Strategy: Prioritising Affordable Vehicles and Production Efficiency

Tesla refocuses strategy: Tesla, the leading global electric vehicle (EV) maker, revealed plans to utilise its existing factories to manufacture new, more affordable vehicles starting as early as late this year. This decision signifies a departure from previous intentions to invest in new factories in Mexico and India in the near term.

The company aims to ramp up production by 50 per cent from 2023, increasing its capacity to nearly 3 million vehicles before considering further investments in new manufacturing lines. While this adjustment may result in less cost reduction than initially anticipated, Tesla stressed its commitment to growing vehicle volumes in a more capital-efficient manner amidst uncertain market conditions.

Investors welcomed the news, with Tesla's shares surging 12 per cent in after-hours trading despite the company's quarterly results falling short of financial targets.

The decision to forgo plans to launch the affordable Model 2, originally slated for production in Texas, Mexico, and another undisclosed location, came after a Reuters report in April. CEO Elon Musk initially refuted the report but refrained from addressing it directly on Tuesday, instead discussing unidentified new models that diverged from the Model 2 concept.

While Musk previously indicated a timeline for delivering the cheaper new model by the second half of 2025, Lars Moravy, Tesla's engineering head, highlighted the risks associated with new manufacturing processes. As a result, the company has shifted its focus to leveraging existing facilities for building low-cost vehicles swiftly and efficiently.

Despite expectations for Musk to announce major investments in an auto factory during a meeting with Prime Minister Narendra Modi, the event was cancelled last minute due to “very heavy Tesla obligations.”

Analysts anticipate challenges for Tesla in expanding capacity amidst projections of slowing sales growth after years of double-digit growth rates. Nonetheless, Tesla reiterated its commitment to sales growth during a conference call, while Rivian, a smaller competitor, opted to produce its more affordable electric SUVs at its existing US factory to expedite deliveries.

In other developments, Tesla announced zero down payments for its Model 3 and Model Y vehicles in China, showcasing its commitment to expanding its market presence and attracting customers in the region.

Hurdles Galore

During Tesla's earnings call on Tuesday, executives openly discussed the hurdles encountered in the first quarter of 2024, which included external factors like the Red Sea conflict and an arson attack at Gigafactory Berlin. 

Despite a notable 55 per cent decline in profits compared to the same period last year, the company highlighted a decrease in the cost of goods sold per unit, primarily attributed to reduced raw material expenses.

Additionally, Tesla addressed the ongoing global pressure on electric vehicle (EV) sales, noting a trend where many automakers prioritise hybrids over EVs. However, the company affirmed its dedication to advancing EV adoption in alignment with its overarching mission.

Despite facing challenges and experiencing a significant 43  per cent decline in its stock value since the beginning of the year, Tesla's stock surged by over 10 per cent after hours following the earnings announcement.