Tesla's Plan for Affordable Car Hits Roadblock Amidst Rising Chinese Competition

Tesla's vision for an affordable electric vehicle (EV) has been halted, dealing a blow to its ambition to become a mass-market automaker.

According to sources familiar with the matter and internal communications reviewed by Reuters, the automaker has abandoned its plans to produce a low-cost car, once touted by CEO Elon Musk as a cornerstone of the company's mission. Instead, Tesla will shift its focus to developing self-driving robotaxis on the same platform.

The Decision

The decision marks a significant departure from Tesla's previous strategy and long-standing goal of offering affordable EVs to the masses. Musk, in his initial master plan for the company in 2006, outlined the objective of manufacturing luxury models first and then using the profits to finance a low-cost family car. However, despite repeated promises to investors and consumers, the affordable model, often referred to as the Model 2, will not see the light of day.

Tesla's cheapest current model, the Model 3 sedan, comes with a price tag of around $39,000 in the United States. The scrapped entry-level vehicle was expected to be priced at approximately $25,000. While Musk had previously assured investors of the company's plans to commence production of the affordable model at its Texas factory in the second half of 2025, those plans have now been shelved.

The decision to abandon the affordable-car project comes as Tesla faces stiff competition globally, particularly from Chinese EV makers offering cars at significantly lower price points. These competitors have flooded the market with EVs priced as low as $10,000, posing a formidable challenge to Tesla's dominance.

The pivot towards self-driving robotaxis, while presenting promising opportunities, also comes with its own set of challenges, including engineering complexities and regulatory risks. While Tesla's timeline and business model for robotaxis remain unclear, Musk has been a vocal advocate for the concept, envisioning a future where driverless taxis could become the predominant mode of transport.

Despite the setback, some within Tesla expressed optimism about the decision to focus on robotaxis, emphasizing the potential of this segment in shaping the future of mobility. However, uncertainties remain, and Tesla's product plans could evolve further based on economic conditions and market dynamics.

The cancellation of the affordable-car project underscores Tesla's late entry into the low-cost EV segment, which is already crowded with compelling offerings from Chinese automakers. Tesla's decision to prioritize projects like the highly experimental Cybertruck over the affordable car has further delayed its foray into this segment, leaving it playing catch-up in a fiercely competitive market.

As Tesla grapples with the fallout from the scrapped project and mounting challenges, including slowing EV demand growth and intense competition, the road ahead remains uncertain. While the company's market capitalization remains formidable, Tesla's future growth prospects hinge on its ability to navigate these challenges and deliver on its ambitious vision for the future of transportation.