Musk denies Model 2 cancellation reports

Musk hints that autonomous vehicle on the same platform is definitely still on the cards

Musk denies Model 2 cancellation reports
Musk responded to the report on social media site X

Tesla CEO Elon Musk has denied reports that the automaker is scrapping plans for its highly anticipated Model 2 EV, which has been seen the key to the company's future sales growth.

The unofficially named Model 2 is set to be a compact B or C segment EV aimed at taking on cheap Chinese competition. Tesla management have repeatedly said that the vehicle would be priced around $25,000, which combined with Tesla's EV brand pedigree, could allow it to take an ither significant chunk of market share.

However, reports from news agency Reuters on Friday said that Tesla had "cancelled the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker", citing three sources "familiar with the matter."

Writing on his own social media platform X in response to a post about the report, Musk said "Reuters is lying (again)".

After months of speculation, Musk first confirmed that his firm was developing the affordable EV for mass-market production in December. He also hailed a "manufacturing revolution" which would allow Tesla to combine unprecedented unit volumes with high margins on the product.

No growth

The reports will be met with consternation from analysts, who largely believe that Tesla's only chance of material automotive growth in the coming years is with a next-generation low-cost vehicle.

“The last five years was a high growth period based on Model 3 and Model Y. This is mostly maxed out or reaching full potential on a global basis,” Deutsche Bank lead automotive analyst Emanuel Rosner told Yahoo Finance in December. “The next great growth spur will come from the next generation vehicle, which is probably a little while away.”

Tesla currently has an ageing product line-up — with the exception of the not-yet high-volume Cybertruck e-pickup — at a time of increasing competition in the EV space and a broad slowdown in EV demand growth.

Tesla has also begun retooling its Texas gigafactory to accommodate the Model 2's unprecedented production line procedures, as well as recently receiving approval for a Mexico gigafactory which Musk has earmarked for future model 2 production. Scrapping Model 2 plans would likely therefore see Tesla taking a substantial hit on capex already spent.

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Reuters reports that Tesla will continue developing self-driving robotaxis on the same small-vehicle platform, although no detail about the size or production of this vehicle is confirmed.

Indeed, Musk also appeared to agree with an X post from online Tesla influencer Sawyer Merritt which speculates if "the $25,000 car is far along enough that they can afford to shift some more resources to the Robotaxi/FSD effort — this does not necessarily mean anything is delayed."

Many Tesla commentators, however, have argued that the firm's decision to produce the Model 2 in the first place came later than expected, reportedly as a result of Musk insisting on making the vehicle fully autonomous.

If the Reuters report is true, it appears that Musk's preoccupation with autonomy and moon-shot technology goals might once again have got into the way of Tesla's more tangible opportunities in the automotive market.

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