Tesla’s shift on low-cost cars throws Mexico, India factory plans into limbo

24 April 2024 - 09:27
By Reuters
Tesla's Mexico and India factory plans are stalled for now. File image.
Image: Supplied Tesla's Mexico and India factory plans are stalled for now. File image.

Tesla said on Tuesday it will use its existing factories to build new and more affordable vehicles as early as late this year, leaving investments in new factories in Mexico and India unlikely in the near term.

The world's top EV maker said it plans to raise production by 50% from 2023 to its current capacity of close to 3-million vehicles before investing in new manufacturing lines.

“This update may result in achieving less cost reduction than previously expected, but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times,” the company said.

Investors cheered the decision not to take the risks of building new models in new factories, with Tesla shares jumping 12% in after-hour trading despite the company's quarterly results missing financial targets.

“I think it's a positive he's not just barrelling ahead with an expansion plan, ignoring the challenges in the market and the fact that he's doing a cheaper vehicle from the existing product line,” said Elliot Johnson, chief investment officer at Evolve ETFs, which manages nearly $6bn (R114.60bn) in assets, including investments in Tesla and other EV makers.

Reuters reported on April 5 that Tesla had scrapped plans to launch its cheap vehicle, known as Model 2, which Tesla planned to build in Texas, Mexico and a third country. The Model 2 had been expected to cost $25,000 (R477,485) and drive Tesla's growth into a mass-market carmaker.

Musk responded with a message on X that “Reuters is lying”. He did not give details and on Tuesday he did not directly address the Reuters report.

Instead, Tesla discussed unidentified new models that appeared to be different products.

In January, Musk said Tesla aimed to deliver the cheaper new model in the second half of 2025, adding it would have “revolutionary manufacturing technology” and generate the next wave of growth for Tesla.

But Lars Moravy, head of Tesla's engineering, said on Tuesday new manufacturing processes and production lines come with “some risks”, and the carmaker made a “major shift” to use its facilities to build low-cost vehicles in a fast and efficient manner for now.

Musk had been expected to meet Indian Prime Minister Narendra Modi on Monday and announce major investments in an auto factory to produce a small, affordable model. He cancelled at the last minute, citing “very heavy Tesla obligations” and said he aimed to reschedule the visit for later this year.

Musk said last year Tesla will “definitely” build its factory in Mexico, but that the timing of the factory would depend on the economy and interest rates that reduce the affordability of vehicles. He also said Tesla would start the initial phases of construction last year.

Tesla did not respond to a request for comment on Tuesday on its plans in Mexico and India.

Analysts said it would be hard for Tesla to expand capacity while it braces for slowing sales after years of double-digit growth rates. Tesla on Tuesday reiterated that this year, its vehicle volume growth rate may be notably lower than in 2023. Musk added during a conference call that sales would grow from last year.

Smaller peer Rivian, known for its R1S SUVs and R1T pickup trucks, said last month it would start producing its smaller, less expensive electric R2 SUVs at its existing US factory to hasten deliveries in the first half of 2026. It had previously planned to build the R2 at a new $5bn (R95.50bn) plant.