On April 18th, Reuters reported that Tesla had scrapped plans for the $25,000 Model 2 electric car, sparking confusion among investors. CEO Elon Musk took to social media with a series of vague posts, stating, "Reuters is lying," without specifying the inaccuracies in the report.
Two weeks later, Musk has yet to provide any concrete information, leaving Tesla investors increasingly anxious. Some are demanding a clear answer regarding the Model 2 and urging Musk to present specific measures to stem Tesla's sales decline amid decreasing global demand for electric cars and intensified competition in China.
Tesla announced on Monday that it would cut over 10% of its workforce globally, further unsettling investors.
Analysts from Wedbush Securities, an investment bank, emphasized the pressing need for answers during the earnings call scheduled for April 23rd. They characterized Tesla's recent negative news cycle as a "horror show" and urged the company to articulate a clear "strategic vision, with the Model 2 at its core."
Dan Ives, a senior stock analyst at Wedbush, stated that Musk's silence on the Model 2 is "extremely painful" for Tesla investors, as this model is crucial for Tesla's growth.
Ross Gerber, president and CEO of investment firm Gerber Kawasaki Wealth & Investment Management, and also a Tesla investor, was more outspoken, saying, "Investing in it [Tesla] would be pointless if they don't introduce this car."
Musk and Tesla have not responded to requests for comment.
Additionally, investors are concerned about another key piece of information from the April 5th report: after terminating the budget car project, Tesla plans to launch autonomous robot taxis on the same small car platform.
In another post on the same day, Musk hinted at the launch of Tesla robot taxis on August 8th, suggesting the possibility of some form of self-driving cars before August this year, but provided no further details. However, industry experts believe that given the engineering and regulatory challenges, Tesla is unlikely to produce road-ready autonomous taxis quickly.
On Tuesday night, Musk discussed Tesla's focus on autonomous cars again on social media, stating, "It's not about betting the company, but going all-in on autonomous is wise. After all, everything else is just a variation of the horse carriage."
Some investors support Tesla's emphasis on robot taxis over the Model 2. Musk's initial two social media posts helped boost Tesla's stock price, which had fallen 6% earlier due to Reuters' report on the budget car model.
Nevertheless, Musk's ambiguous statements continue to leave investors uncertain about Tesla's future product plans and timeline. After news of Monday's layoffs emerged, Tesla's stock price fell again, now down over 45% from its recent high in July last year.
Tesla remains the world's most valuable carmaker, with a market capitalization of around $500 billion, far surpassing the largest-selling carmaker, Toyota.
The April 5th report cited four sources familiar with Tesla's strategy and internal affairs confirming the termination of the Model 2 project. The report mentioned that the project manager for the Model 2 had instructed the team not to inform suppliers of the "project cancellation."
In a letter to the team, the project manager wrote, "You've all done incredible work, and what you've learned will be applied to all future projects." He also advised employees to "properly handle remaining matters and document them," as well as to "move forward after completing final tasks."
Investors "Await Clarification"
With Musk failing to provide clear answers, analysts have expressed various investment views on Tesla's growth prospects amid uncertainty about whether Tesla will introduce the Model 2.
Deutsche Bank reflected the sentiments of many investment firms in an analysis report: "We are waiting for a clear statement from Tesla." The bank described Tesla's cancellation of the Model 2 as a "game-changer," believing that this decision would lead investors betting on Tesla's mass-market growth to exit, making way for those with "more foresight in AI or tech investments."
Wedbush, however, took a pessimistic view, seeing Tesla without the Model 2 as dim. Analysts at Wedbush stated last week that canceling the Model 2 meant a "collapse" of Tesla's growth prospects and that robot taxis were not a "silver bullet" to replace its position.
Musk had promised in January this year that Tesla planned to launch the Model 2 in the second half of 2025, echoing Reuters' previous reports. However, Wedbush analyst Ives pointed out that a complete reversal in just three months is hard to comprehend. He also stressed that Tesla has consistently failed to deliver the long-promoted budget model on time. Elon Musk bluntly stated, "Many problems are self-inflicted due to a lack of mature decision-making."
Currently, Tesla's cheapest model on the market is the Model 3 electric sedan, priced at around $39,000 in the United States. With sluggish global demand for electric vehicles and Chinese electric car manufacturers dominating the entry-level market, Tesla continues to lower the prices of its Model 3 and Model Y.
The Model 3 and Model Y are Tesla's only two mass-produced models, both of which are relatively outdated and in need of redesign. Tesla has struggled to mass-produce the more expensive experimental electric pickup truck, the Cybertruck, partly due to manufacturing issues with the 4680 battery cells. Earlier this month, Tesla informed investors that sales of all models in the first quarter dropped by 8.5%, marking the first decline in electric vehicle sales for the company in nearly four years.
Meanwhile, Chinese electric car manufacturers like BYD have already introduced electric vehicles priced as low as $10,000 in the Chinese market. This month, Xiaomi, a manufacturer of smartphones and home appliances, shocked the industry with its first electric car priced at $30,000, garnering over 100,000 orders in less than a week.
"Smart" and "Bold" Moves
Some investors also support Tesla's decision to cancel the Model 2 and instead focus on robot taxis. Deepwater Asset Management, a holder of Tesla stock, counts Gene Munster, managing partner of the firm, among its supporters. Munster believes that Musk did not outright deny Reuters' April 5 report as many investors had thought.
"He didn't specifically address the Model 2," Munster said. "He simply accused Reuters of lying. But he often accuses others of lying."
Munster believes that Musk's vague statements, coupled with his subsequent post about the "unveiling of robot taxis," actually indicate that Tesla may have shelved plans for the Model 2 and shifted focus to developing robot taxis. He appreciates this strategic shift, calling it "smart" and "bold," and believes it could propel Tesla into the next generation of transportation. Munster suggests that self-driving cars will become a "higher-margin industry."
As an investor in Tesla, Jake Bleicher, portfolio manager at Carson Wealth Management Group, also believes Tesla could surpass Chinese electric car manufacturers with genuine self-driving cars. However, he notes that given Musk's hints in social media posts, he expects some concrete details to be announced in August.
"If Tesla were to announce on August 8, 'We will launch self-driving taxis in five or six cities,' I believe this would be enough to drive the stock price up," Bleicher said.
However, he also points out that without substantial progress, investors are bound to "panic."
"Especially against the backdrop of Tesla's sharply declining car profit margins over the past two years," Bleicher said, "people are paying less attention to the cars themselves and more attention to Musk's promises."
