Tesla (TSLA.O) has told suppliers it wants to start production of a new mass market electric vehicle codenamed "Redwood" in mid-2025, according to four people familiar with the matter, with two of them describing the model as a compact crossover.
Tesla CEO Elon Musk has long whetted fans' and investors' appetites for affordable electric vehicles and self-driving robotaxis that are expected to be made on next-generation, cheaper electric car platforms.
Those models, including an entry-level $25,000 car, would allow it to compete with cheaper gasoline-powered cars and a growing number of inexpensive EVs, such as those made by China's BYD (002594.SZ).
BYD overtook Tesla as the world's top EV maker in the final quarter of 2023.
Musk had first promised to build a $25,000 car in 2020, a plan he later shelved and then revived. Tesla's cheapest offering, the Model 3 sedan, currently has a starting price of $38,990 in the United States.
Musk said last year he was concerned about the impact of high interest rates on consumer demand for big-ticket items like cars.
Tesla sent "requests for quotes," or invitation for bids for the "Redwood" model, to suppliers last year, and forecast weekly production volume of 10,000 vehicles, two of the sources said.
Production would begin in June 2025, three of the sources said. All spoke on condition of anonymity because the matter is confidential.
Tesla did not respond to a request for comment.
Timing of next-generation compact vehicles was one of the most voted questions by investors to Tesla ahead of its quarterly results report on Wednesday afternoon, where it is expected to forecast a 21% rise in 2024 deliveries, well below the long-term annual target of 50% that Musk set about three years ago.
Musk said in May that Tesla was working on two new products, with the potential for combined sales of 5 million vehicles a year. "Both the design of the products and manufacturing techniques are head and shoulders above anything else that is present in the industry," he said at Tesla's annual shareholder meeting.
Tesla plans to make an inexpensive robotaxi and an entry-level, $25,000 electric car based on the same vehicle architecture, according to Walter Isaacson's biography of Musk released in September, which includes interviews with the CEO and executives.
Musk said in 2022 that Tesla would make a dedicated self-driving taxi with a futuristic look in 2024, after several misses at its goal of achieving full self-driving capability.
He and other Tesla executives laid out plans last March to halve the cost of its next-generation vehicles, but did not provide a timeframe for the launches.
STUDYING A HONDA CIVIC
Tesla has a track record of missing its targets for launches and pricing, and it would take time to build volume.Cybertruck production, for instance, has been delayed and slow to accelerate and its $60,990 U.S. starting price is 50% higher than Musk touted in 2019.
"They have been overly optimistic on most of their new product launches. Volume output is more likely to begin in 2026," one of the sources said.
Musk said last year the affordable model would initially be built at Tesla's factory in Texas.
Making a profit from the cheaper EVs will be challenging, given the costs of batteries as well as traditional difficulties producing quality inexpensive vehicles.
Tesla in recent years tore down a Honda (7267.T) Civic, whose price starts at $23,950 in the United States, to study how to make cheaper cars, two separate sources said.
The next-generation Tesla architecture, internally called "NV9X," will include two or more models, said the two people and one of the initial sources.
Tesla also plans to build cheaper cars at its factory near Berlin, and is interested in building a factory in India to produce less expensive electric cars, sources said previously.
The EV maker also has factories in Shanghai and in Fremont, California.
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At the opening of the US cash market, Tesla shares were marginally higher following a Reuters report that the company is in talks with suppliers regarding a mass-market electric vehicle, codenamed "Redwood," set for a mid-2025 release.
Sources familiar with the new mass-market EV said it's described as a "compact crossover" and will compete with cheaper petrol-powered cars and inexpensive Chinese EVs, such as those made by BYD.
Tesla founder Elon Musk has teased over the years with a $25,000 mass-market model. At the moment, the cheapest offering by Tesla is the base Model 3 sedan, starting at $38,990 in the US.
Sources said Tesla engineers sent "requests for quotes" to suppliers for the Redwood last year. One weekly forecast shows production volumes of upwards of 10,000 vehicles per week. They noted production would begin as soon as June 2025.
Timing of the mass market EV comes as BYD displaced Tesla as the world's biggest maker of EVs in the fourth quarter.
Sales of overall EVs are sliding due to elevated interest rates. Also, prices of used Teslas are plunging.
Tesla is scheduled to report fourth-quarter earnings after hours today. Earnings estimates point to $25.8 billion in revenue and an Earnings Per Share of $0.74. Tesla's gross margin rate is projected to be 18.1%, compared to 17.9% in the third quarter and 16.0% in the same period last year. The company's free cash flow for the quarter is expected to be around $1.45 billion.
Ahead of earnings, Adam Sarhan, founder and CEO of 50 Park Investments, told Bloomberg:
The mass market electric vehicle might be the bullish catalyst for the market."Tesla investors are looking for a bullish catalyst, but there isn't one in sight.
"Investors are going to pay these multiples for earnings for only so long, and if the fundamental story changes and earnings get compressed, then valuation gets compressed."
