The new $25,000 Tesla “Model 2” compact hatchback could be even more affordable when it comes to the US. Here’s how.
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Transcript:
If you’ve been waiting for a chance to buy a brand new Tesla for less than $20,000 then that time could be coming soon. Today I’m going to put on my optimistic hat and explain all the different dominoes that are in effect right now that could potentially lead to a new Tesla model that cost just $19,000 here in the US.
To understand the reasoning behind all this let’s be reminded that Tesla’s mission is to accelerate the transition to sustainable energy. Providing a low-cost electric vehicle is literally at the heart of their mission. In Elon Musk’s master plan for Tesla it includes a list of the company’s main goals, which in part one was to create a low volume, expensive car, then use that money to create a medium volume car at a lower price, then use that money to create a more affordable, high volume car. They accomplished all of that. And if you look at the very end of Elon’s master plan part two you can see it says one of the major gals is to “Expand the electric vehicle product line to address all major segments.” This means Tesla wants to (and in some cases already is) creating all kinds of different vehicles including electric semis, pickup trucks, crossovers, vans, and hatchbacks. Hatchback is the key word there.
Let’s revisit the very end of Battery Day when Tesla briefly mentioned their plans for a future $25,000 Tesla passenger vehicle. Elon said they were confident they could design and manufacture a compelling $25,000 electric vehicle as he stood in front of an uncovered mystery car on the presentation slideshow. He then went on to say their goal has always been to make a truly affordable electric vehicle and said they could probably make a fully autonomous $25,000 Tesla about 3 years from now which at the time would be referring to September 2023.
However, this mystery $25,000 Tesla (commonly referred to by many as the Model 2 though there is no official name yet) is no surprise by any means. Over a year ago in early 2020 there were reports of Tesla creating a car in China for worldwide sale. This was confirmed just last month when there was an official government report from the Tesla Shanghai Gigafactory that showed Tesla is indeed planning to add a new cheaper model that will be designed and produced at the Shanghai facility as soon as 2022.
The are a few things to keep in mind regarding Tesla’s Gigafactory in Shanghai. First, China is the world’s biggest market for electric vehicles so it has strong government support for pretty much all EV companies. Another point to note is that Tesla’s Shanghai Gigfactory is extremely fast and efficient. The first Chinese Tesla was built and delivered to a customer in record time, just 10 months after construction of the facility began. It also has a very high production efficiency with a low supply chain and labor cost. With an annual capacity of 500,000 units, the plan for Giga-Shanghai is to produce the Model 3, the Model Y, and now this new upcoming Model 2 compact hatchback. So given the speed and efficiency of Giga-Shanghai and the fact that Tesla delivered Model Y ahead of schedule last year, I don’t think it’s unreasonable to assume the new Tesla Model 2 could come a lot sooner than expected.
Jumping into the potential timeline of the new Tesla Model 2, last week Tesla China’s president, Tom Zhu, confirmed in an interview with a Chinese media outlet that the upcoming $25,000 Tesla car will be designed with China in mind but sold globally. He said construction is already underway on a local research and development center and the site will cover everything for this new Tesla model including vehicle design, engineering, development and testing. Though there was no firm commitment, he said he thinks it could be done within a year. But that appears to be more of an estimate than a confirmed timeline. And finally just a few days ago, a rumored timeline showed up from Chinese Media IT Home’s website that indicated the new Tesla model was approved in September, product certification is coming next month, and first deliveries are planned for next year. This rumor was accompanied by a disclosure saying Tesla China neither confirmed nor denied it.
So obviously there is no confirmed timeline, but based on what we’ve heard from the official Tesla China division we do know they are for sure developing a new compact hatchback model that will cost around $25,000 US and will most likely be slightly smaller than the Model 3. We know from the slideshow at Battery Day that it will use lithium iron phosphate batteries which are the cheapest and least energy-dense of the three battery groups. This supports the idea of the car’s more affordable price tag. And it should have around 200-250 miles of range. We also know that Tesla Shanghai’s battery manufacturer, CATL, recently invested $6 billion to expand lithium-ion battery capacity. The Model 3s in China are already using that sane battery chemistry so this supports the timeline rumor of producing and delivering the car by next year. We also know that the new model will be offered in China first before coming to the US.
So if and when the new Tesla Model does make it to the US it can possibly have an even cheaper price tag of around $19,000 for some customers if the new EV tax credit bill gets passed. Recently the Democrats proposed a reform to the federal EV tax incentive program called the GREEN act. If passed, it could provide Tesla with a tax credit incentive up to $7,000 for 400,000 additional vehicles sold in the US. There is already a current federal EV tax credit inventive program in place that I myself along with thousands of others were able to take advantage of when buying their first Tesla vehicle. However, Tesla surpassed the current threshold of 200,000 vehicles so the tax credit went away for them in 2019. But this proposed reform does have a decent chance of getting passed since the democrats hold the house, senate, and White House.
Remember this tax credit only applies to electric vehicles sold in the US. According to the CarSalesBase.com Tesla delivered around 235,000 vehicles in the US in 2020. So if we assume some year over year growth on Tesla’s US sales let’s be conservative and guesstimate that if the Green Act does get approved then Tesla may very well have the $7,000 tax credit for an entire calendar year to cover 400,000 vehicles sold in the US. Here’s where our optimistic hat comes into play: If the bill does get passed later this year and if the Tesla Model 2 timeline somehow matches the rumor and is ahead of schedule, then it could be possible to buy the upcoming $25,000 Tesla Model 2 in the US and get a $7,000 tax credit to bring the cost down to $19,200 after factoring in Tesla’s required documentation and delivery fee which is currently $1200.
Obviously there are a lot of if’s in that scenario and nothing is guaranteed or confirmed at this point, but many of the signs are pointing to this being a real possibility. And if it does happen that means you could get a new Tesla for under $20,000 and it would be a huge success and giant smack down to gasoline vehicles, especially when it’s competing with other similar compact hatchbacks like the Toyota Corolla hatchback which are around that same price range. And even if the $7,000 tax credit doesn’t get passed or it’s gone but the time the Model 2 comes to the US, the Model 2 will still fill a big gap in the compact hatchback market where the Toyota Yaris and Honda Fit have been discontinued. It will seriously be a game over moment for a lot of gas cars when customers can buy a new Tesla for the same amount of other affordable cars in the same market category. Of course the base Tesla Model 2 at the price of $25,000 will be just that: basic and minimal. You’ll of course need to pay more for the extras like full self driving or another paint color, but at the end of the day the base Model 2 is still a Tesla at its core and will still have the unmatched drive train, battery efficiency, and the high safety standards that Tesla prioritizes in all their vehicles. Plus it should be capable of full autonomy according to Elon.
What do you think? Am I crazy to think this is possible? What do you think will happen? Let me know in the comments below. If you enjoyed this video be sure to give it a thumbs up and subscribe if you want to see more videos like this in the future. My name is Andy. Thank you for watching, and I’ll talk to you in the next one.