Tesla Stock Drops as Report Says Company is Scrapping Plans for Cheaper EV
The news agency Reuters reported Thursday that Tesla Inc. is abandoning plans to produce a low-cost electric vehicle and will pivot to manufacturing self-driving robotaxis.
The report sent Tesla stock downward. CEO Elon Musk refuted the report on the social media platform he founded, Twitter, calling the reporting "lying."
Musk also tweeted that Tesla will unveil the Robotaxi on Aug. 8. Reuters stands by its reporting.
The reported change in plans represents an abandonment of a longstanding goal for the company. Since its inception, Tesla has emphasized the production of EVs geared toward the masses, rather than luxury models.
Musk has often characterized this mission as Tesla's primary goal. He emphasized these points again in a shareholders' meeting in January, where he also noted the company's plans to begin production on the affordable EV model, dubbed the "Model 2," in the second half of 2025.
The company has code named the project NV91 and H422 for suppliers. Reuters reports that messages from a Tesla program manager to staffers referenced those code names in discussing the project's termination.
Additionally, the report notes that some engineers have been reassigned, and meetings on the affordable-car project have been canceled.
Tesla's cheapest current model, the Model 3 sedan, sells for about $39,000. The reported change in plans comes as Tesla faces increased competition globally from Chinese companies whose EVs are priced as low as $10,000.
According to the report, Tesla has not given an explanation for the change in direction. It does note, however, that the plan for driverless robotaxis presents a stiffer engineering challenge and more regulatory risk.
One source with knowledge of Tesla's plans expressed optimism about the pivot in favor of robotaxis, but the source also cautioned that the company's product plans could change again based on economic conditions.
Tesla's disappointing Q1 delivery figures were attributed to logistical problems, including an arsonist setting fire to its German plant and ships having to avoid the Red Sea due to threats of violence.
These challenges came along with the company facing increased competition, with Chinese companies gaining market share, economies of scale, and offering enticingly low prices that Western companies struggle to match.
This stiffer competition, along with economic factors, may have contributed to the change in Tesla's product line. Musk has wavered on the project before, too.
In a biography of Musk released last year, author Walter Isaacson reported that Musk put a hold on the entry-level EV plans in 2022, reasoning that a Tesla robotaxi would make the car irrelevant.
Musk's advisors urged him to stay the course with the project. Currently, self-driving cars are only approved for limited use on public roads in the US and China.
Tesla has faced lawsuits and investigations into crashes involving its Autopilot and Full Self-Driving systems, which are not fully autonomous. The company has blamed these accidents on inattentive drivers.