Tesla announced on Tuesday its intention to utilize its current factories for producing new, more affordable vehicles, shelving plans for investments in new facilities in Mexico and India in the near future.
The leading electric vehicle (EV) manufacturer aims to ramp up production by 50% from 2023 to its current capacity of nearly three million vehicles before considering investments in additional manufacturing lines. Despite this decision potentially yielding less cost reduction than previously anticipated, Tesla believes it will facilitate prudent growth amid uncertain market conditions.
Investors reacted positively to the announcement, with Tesla’s shares surging 12% in after-hours trading, notwithstanding the company’s quarterly results falling short of financial targets.
The decision not to proceed with new models in new factories garnered approval from analysts and investors alike. Elliot Johnson, chief investment officer at Evolve ETFs, praised Tesla’s strategy of prioritizing a more affordable vehicle within its existing product line amidst market challenges.
Earlier reports indicated Tesla’s plans to launch a cheaper vehicle, known as Model 2, which were subsequently scrapped. Tesla’s CEO Elon Musk disputed these reports initially but did not address them directly on Tuesday.
Instead, Tesla hinted at unidentified new models, diverging from previous plans. While Musk had previously mentioned delivering the cheaper model by the second half of 2025 with revolutionary manufacturing technology, Lars Moravy, head of Tesla’s engineering, emphasized the risks associated with new manufacturing processes.
Musk’s planned meeting with Indian Prime Minister Narendra Modi was canceled, delaying the announcement of investments in an auto factory in India. Similarly, plans for a factory in Mexico have been deferred pending economic conditions and interest rates.
Tesla’s move aligns with the broader trend in the EV industry, with Rivian opting to produce its smaller, less expensive electric SUVs at its existing US factory to expedite deliveries.
The International Energy Agency (IEA) predicts a surge in electric car sales, with electric vehicles accounting for a significant portion of global car purchases by 2024. Affordability and charging infrastructure are identified as crucial factors driving future growth in the sector, with electric cars expected to increasingly compete with traditional vehicles.
