Tesla abandons plans for affordable car due to intense competition in Chinese EV market

Tesla has scrapped the much-anticipated affordable car that investors were banking on to propel its growth as a mass-market automaker, as revealed by sources familiar with the matter and company messages seen by Reuters.

Instead, the automaker will shift its focus to developing self-driving robotaxis on the same small-vehicle platform, according to the sources.

This move marks a departure from Tesla CEO Elon Musk’s longtime goal of producing affordable electric vehicles for the masses, a vision outlined in the company’s initial strategy back in 2006. The decision has caused Tesla shares to drop approximately 3% following the Reuters report.

Despite Musk’s repeated promises to investors and consumers, Tesla has decided to cancel its entry-level vehicle, previously referred to as the Model 2, which was expected to start at around $25,000. This decision comes amidst fierce competition from Chinese electric-vehicle manufacturers offering cars at much lower price points.

Musk has emphasized the importance of robotaxis as the future of mobility, steering Tesla towards prioritizing this segment over the affordable car strategy. While plans for robotaxis present significant engineering and regulatory challenges, Tesla is now set to produce them in lower volumes than originally projected for the Model 2.

Despite the cancellation of the Model 2, Tesla faces uncertainties in its product plans and market strategies, especially with Musk’s ambitious sales targets and the evolving landscape of the electric vehicle industry.

The company’s decision to pivot away from the affordable-car strategy towards robotaxis reflects a broader shift in Tesla’s approach amid growing competition and changing market dynamics.

As Tesla navigates these changes, the future of its product portfolio and market positioning remains subject to economic conditions and evolving consumer preferences.

Overall, Tesla’s strategic realignment underscores the challenges and opportunities facing the company as it seeks to navigate the rapidly evolving landscape of the automotive industry.

‘Halt all further activities’

Tesla’s decision to cancel the affordable car project, internally known as NV91 and externally as H422, signals a significant shift in the company’s product development strategy, impacting engineering resources and supplier relationships.

While the reasons behind the cancellation are not fully known, Tesla has instructed suppliers to halt all activities related to the project, prompting a reevaluation of the company’s priorities and market positioning.

As Tesla transitions away from the affordable-car project towards focusing on robotaxis, key stakeholders within the company are being reassigned, and internal communications reflect the shifting priorities and strategic direction.

Despite the challenges and uncertainties surrounding the cancellation of the affordable-car project, Tesla remains committed to its long-term vision of innovation and growth in the electric vehicle market.

Running late

Tesla’s decision to cancel the affordable car project comes at a critical juncture for the company and the electric vehicle industry as a whole, highlighting the competitive pressures and shifting market dynamics impacting automakers globally.

With the entry-level EV segment becoming increasingly crowded and competitive, Tesla’s strategic realignment reflects the company’s efforts to adapt to changing market conditions and consumer preferences.

As Tesla grapples with challenges related to production, supply chain management, and market positioning, the company’s decision to prioritize robotaxis over affordable cars underscores its commitment to innovation and long-term growth in the rapidly evolving automotive landscape.

While the cancellation of the affordable car project may present short-term challenges for Tesla, the company’s strategic pivot towards robotaxis signals a broader shift in its product development and market strategies, reflecting a forward-looking approach to addressing the complex challenges and opportunities in the electric vehicle market.