What’s left is the company’s daily grind of selling EVs in mass numbers, and there the outlook is poor, with the company flagging a revision in full-year guidance when it reports second-quarter earnings later this month. Musk’s singular focus on self-driving vehicles appears to have led him to neglect the carmaker’s core business, and now plans that were arranged last year to bring fresh product to market are again running behind schedule.
“Without a new model, things will only get worse. It’s their only chance in the near term to fill their production capacity of 3 million annual vehicles,” Stefan Bratzel, founder and director of Germany’s Center for Automotive Management, said in an interview with Fortune. He’s not convinced Tesla can grow its vehicle sales next year, let alone this year as Musk has promised.
“Elon Musk can argue robotaxis compete in a different market and point to Tesla’s market value all he wants—in my view he’s just putting on a brave face,” he said.
Tesla did not respond to a request by Fortune for comment.
Pace of sales drop expected to accelerate
When Tesla reports second quarter vehicle sales later on Wednesday, the company is expected to reveal an even steeper year-on-year drop than the 13% registered in the first quarter.
The 383,000 vehicles projected would be its lowest delivery number for Q2 since 2022, when its two new factories in Austin and Germany were barely building any cars. The rate of descent is expected to accelerate to 14% based on the median estimate of analysts surveyed by Tesla.
In the company’s well-informed fan community—where data is tracked religiously, disseminated real time via social media, and discussed online almost daily—many retail investors are bracing for a drop closer to 20% or worse.
Meanwhile in crucial markets like China, Tesla faces fresh competition from the likes of Xiaomi’s YU7, a crossover deliberately targeted at the Model Y. The YU7 has already attracted nearly 300,000 pre-orders in only an hour.
Without new product, the company will not be able to meet its target for volume growth in 2025, itself a far cry from the original forecast of 20%-30% EV sales growth that Musk had predicated in October. The poor sales figures already reportedly cost one top executive his job.
Tesla has been promising more affordable models by June since early last year
The only new addition on the horizon to Tesla’s passenger car line-up, of which investors can be certain, is a CyberCab that comes without a steering wheel or pedals. it’s unclear whether there is any demand for a car that cannot be controlled manually. Even if Tesla re-engineered it to allow for human drivers, it only seats two, limiting it to a niche market.
“Without a new model they’ll keep on losing market share to BYD in China and Volkswagen Group in Europe,” Bratzel said. “Don’t forget they’ve also suffered a heavy image loss due to Musk’s political activities.”
Tesla knows this as well, and the company has repeatedly promised over the past 15 months it would accelerate the launch of new models, including more affordable ones, to the first half of this year. Yet the only all new model not previously in the product range is the single-motor Cybertruck RWD, which—while $10,000 cheaper—stripped away a lot of features, limiting its appeal.
Tesla fans have been waiting patiently for months, debating online what it could look like, designing their own renderings and comforting themselves that Musk still had until the end of June.
‘Full utilization of our factories is the primary goal for these new products’
Yet just like the Roadster the CEO promised to reveal by the end of last year, the first half of 2025 came and went with no news about the more affordable models—despite repeated assurances from Tesla executives.
“We’re still focused on bringing cheaper models to market soon. The start of production is still planned for June,” finance chief Vaibhav Taneja said in April during the Q1 investor call. His colleague, chief vehicle engineer Lars Moravy, added there is “nothing blocking us from starting production within the timeline laid out”.
This new timetable wasn’t pulled out of a hat. There was a very real reason Tesla claimed they could shave an average of six months off its original model launch timetable: Musk decided to switch the newer models from the CyberCab’s next-gen vehicle architecture to the existing Model Y/3 platform. The tactical rationale behind this is Tesla has too much installed production capacity which needs to be utilized to offset their fixed costs.
“Models that come out in next months will be built on our lines and will resemble, in form and shape, the cars we currently make,” Moravy said on the call. “It’s important to emphasize that as we’ve said all along, the full utilization of our factories is the primary goal for these new products.”
Risk of cannibalization effect
Bratzel warns this limits their product differentiation, and poses a risk to existing models should they eventually be built. A fine balance has to be struck when moving downmarket.
Reduce price too much and you’ll pull demand from higher margin products—what known in the industry as the dreaded cannibalization effect. On the other hand, reduce features too much and you won’t generate enough additional volume to justify the investment.
That’s why traditional car companies invest in new bodystyles or expand into new segments where they had no offer previously. Musk by comparison has favored the iPhone approach: design one killer product and manufacture it at a lower cost than the competition though massive economies of scale.
But he lost his touch with the Cybertruck, which was supposed to do to the pickup segment what the Model Y did for SUVs, but floped. While Musk’s attention was diverted to politics and robots, car companies have been poaching his EV customers tired of buying effectively the same Model Y as almost six years ago. And that won’t likely change any time soon.
“They’ll have to bring a stripped-down Model Y, perhaps before the end of this year,” Bratzel predicts. This would be a cheaper version with fewer creature comforts, for example seats that use cloth instead of pricier synthetic leather. “We’ll just have to see how much of the existing Model Y volume it cannibalizes.”
Politics8 years ago