Update: Q1 2024 Earnings announcement provided some hints on where Tesla is going. Tesla will be make making a lower cost model sooner using existing factory lines but no price target specified. They mentioned it will not achieve the full cost savings that would get if they had created new lines using the more parallel and more efficient unbox method. https://investinwhatyouknow.com/tesla-q1-2024-earnings-released-revenue-17-378b-down-9-yoy-gaap-income-1-129-down-55-yoy-diluted-eps-0-34-down-47/
There was Reuter’s article claiming to that Tesla’s 25k Model 2 is canceled. Tesla has not had an official announcement on the $25k Model. Elon Musk responded that the article is lying but did not explicitly indicate the status of the $25k model. Then Elon Musk announced they would reveal the Tesla Robotaxi on 8/8/24. Only people high up inside the company really know what’s going on. Franz knows but did not say much. On X an audience asked him if $25k is canceled and he replied, “Stay Tuned and don’t always believe everything you read.” https://twitter.com/BLKMDL3/status/1777029442935964066
To get some hints on the $25k project, it helps to rewind to 2023 Investor Day. Tesla revealed that in order to get to the next level cost reduction, they would need to redevelop the manufacturing methodology. Jump to 47minutes into the video to watch Lars and Franz discuss their plans: https://www.youtube.com/watch?v=Hl1zEzVUV7w
Current assembling method assembles the car with doors on. Next the car is painted. Then the doors are disassembled. Interior panels of the car go in. Bottom with drive train goes in and then seats go in. Lastly the doors come back in. Model Y had already improved on this using Gigapressed front and rear structures reducing hundreds of parts. In making the Model Y with structural pack which becomes the floor and the floor is part of the car. The pack with seats are assembled separate from the car. The pack is then assembled with the car and saved 10% assembly time. This method saved time because more assembly is done in parallel. In this new assembling for the next gen vehicle, Teslas thinks they can take parts of the car and assemble that separately. Instead of 5 people operating on the entire car, they can have 5 people on the front, 5 on the back and operate faster. Telsa calls this the Unboxed Process. Interior is assembled bottom up or top down. Subassemblies are made separately and then it’s put together once. The sides would have all their parts. Same for front, rear and bottom and then the doors are put in. From that presentation it suggests Tesla has put in a lot of thought into making a lower cost next gen vehicle. Since current lineup’s Capex is already spent and is working, they will not remake existing lineup using the new method. They had said this would be used on a next gen low cost vehicle.
From a revenue growth perspective and from it mission statement, if Tesla is able to make a car cheaper and more accessible to more people, it makes sense to proceed. In the 2hr:42minues into the 2023 Investor Day video, Tesla CFO showed Next Gen vehicle to offer total cost of ownership over 5 years to be lower than Model 3. Model 3 is already cheaper to own than a Toyota Corolla. Making the $25k car will take new capital expenditure. The 8/8/24 Robotaxi announcement suggests that Robotaxi project would come in ahead of the $25k low cost model since no reveal date had been set for that model. Making the Robotaxi does not require $25k model to be canceled. In this current environment with revenue falling and the 10% layoff, Tesla might not have the strength to do both project concurrent. A possible roadmap is to do the Robotaxi and then the $25k model. Revenue from Robotaxi will require FSD to be extremely robust and FSD V12 currently is not there yet. With more training and more examples, FSD will continue to improve. The unknown and risk is when FSD can get to level 5. Perhaps Elon Musk sees V12 working so well and is optimistic the existing AI models they are using will improve FSD at a faster rate. From the 2023 Investor Day presentation, FSD uses the an AI architecture similar to ChatGPT. The transformer model been proven extremely robust by AI LLM models from OpenAI, Anthropic, Mistral, Google, Meta AI. The model gets better when larger parameters and more data. FSD uses transforms model with attention and autoregressive decoder. Jump to 1hr 23minutes of the presentation: https://www.youtube.com/watch?v=Hl1zEzVUV7w
At 1hr 28m, Tesla says FSD in 2023 was trained using 14k GPUs, 4K for auto labeling and 10k for training with 30PB distributed video cache. FSD in 2023 had 400k customers. FSD is safer than human driver. An average human driver gets into an accident every .5M miles. FSD had one accident every 3.2M miles.
During that period where FSD is training there would be no Robotaxi revenue. This would delay revenue growth from the $25k model. If the $25k model and Robotaxi share parts and factory then delay may be reduced. Its CFO in 2hr:42 of the 2023 Investor Day mentions that the Robotaxi is a variant of the Next Gen vehicle. Next Gen and Robotaxi may be very similar. Towards the end of his presentation, he mentions improving affordability is a key ingredient of Tesla’s plan. Increasing affordability increase volume and income. The increased income allows the company to reinvest to increase volume and repeat the cycle. This then ultimately helps to move the world to sustainable energy. Whether $25k model is canceled, delayed or no change from existing plan, the earnings call is a good opportunity for Tesla to clarify their plans.