Musk Says Smaller, Cheaper Tesla Is Planned

A Tesla Model 3 drives on a wet road. We see the car from a rear quarter angle, facing to our left and driving away from us. It is medium blue and kicking up water from its tires.Tesla CEO Elon Musk this week said the company plans to develop a new, next-generation electric vehicle that “will probably be about half the cost of the 3 and Y platform.” The news came as something of a surprise and requires some explanation.

What he said, what he didn’t say, and who he said it to make the news potentially confusing.

Cost Isn’t Price

First things first: This doesn’t mean there’s a $30,000 Tesla coming anytime soon. It doesn’t rule one out, but it’s unlikely for several reasons.

Musk said the cost of the platform would be lower. That doesn’t mean the price of the car will be that low. The news is being read by car shoppers, who are concerned with the sticker prices of new cars. But Musk was speaking to investors, who are concerned with the cash flow of the company that builds them.

He was almost certainly referring to the cost of building the car, not its final price.

Tesla, unlike most automakers, has control of its prices. The company sells its cars directly in some states and sells cars online in states where that isn’t legal. That means there’s no middleman negotiating the price of a Tesla — the price you see on the website is the price you pay.

But that price can fluctuate. For instance, the company’s flagship Model S sedan cost $69,420 two years ago. Today, it starts at $109,490. That’s nearly a 60% increase in two years.

EVs Are All About Platforms

Electric vehicles (EVs) are built on platforms to a greater extent than gasoline-powered cars. Two EVs from one manufacturer can have almost all of their parts in common.

A platform is a skateboard-like collection of electric batteries, motors, suspension, and steering components. Engineers scale them up or down to build vehicles of many sizes.

General Motors, for instance, calls its platform Ultium. The Ultium platform is the foundation of cars as varied as the $30,000 Chevrolet Equinox EV and the $300,000 Cadillac Celestiq ultra-luxury car. GM builds pickup trucks, SUVs, and sedans on the Ultium platform.

Tesla currently has two production car platforms — one under its Model S sedan and Model X SUV and a second under its Model 3 sedan and Model Y SUV.

Musk revealed that the company is working on a third. “It will be smaller, to be clear,” he stressed.

Tesla Is the Most Opaque Automaker

The news surprised the press because, in late 2021, Musk had denied that Tesla was working on a less-expensive vehicle. In the company’s 2021 fourth-quarter investor call, Musk said the company had halted plans to build a less-expensive model. “At some point, we will. We have enough on our plate right now. Too much on our plate, frankly,” he said.

Most automakers operate a public relations department to field questions from reporters. Tesla does not. So, we are often left waiting for investor events for news. Musk’s denial was the last we’d heard of plans for a cheaper Tesla.

Musk’s Claims Don’t Always Pan Out

Finally, we should note that opacity and Musk’s bombastic personality often lead to misunderstandings about what Tesla plans to do.

Musk is not shy about outlandish claims. Just last month, he took considerable heat for claiming the company’s long-promised, much-delayed Cybertruck could also operate as a boat.

More relevant to this discussion, at the 2016 unveiling of the original Tesla Model 3 prototype, Musk promised the car would carry a price tag of around $35,000. It allegedly did, briefly. When it arrived in 2019, Tesla listed a Model 3 on its website for $35,000. But it sold few of them and pulled the option from the lineup within weeks.

Today, that same car sells for $48,490.

What Does It All Mean?

So, will we see a Tesla for half the price of the current Model 3?

That’s unlikely, but a model less expensive than the current lineup is believable.

Economies of scale mean EV prices will decrease as they become more popular and automakers build more of them. GM has already promised the roughly-$30,000 Equinox EV for the 2024 model year. And remember, it shares a platform with six-figure cars.

Tesla has grown into America’s best-selling luxury automaker and a company with factories on three continents. It’s not as big as GM, but it’s big enough to take advantage of volume to lower prices over time.

A less-expensive Tesla is quite possible. But, if the company’s history is any guide, it may take longer than expected, and Musk may make some outlandish claims along the way.

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