Is Musk really going to tear up the Model 2 tickets? This is what I think

After the U.S. stock market on the morning of October 23, $Tesla(TSLA.US) released its third-quarter report (for details, please refer to "The return of the 'Pie King' Tesla!"). Due to the higher-than-expected gross profit margin in the automotive business and the early announcement of a new affordable model, expected to be delivered in the first half of 2025, and it is expected that this model will drive a sales growth rate of 20%-30% in 2025. Both the delivery time and the contribution to the sales growth in 2025 exceeded market expectations, and Tesla's stock surged by 21.9% overnight.

Moreover, Musk also mentioned in this conference call that simply releasing a $25,000 car (with inadequate autonomous driving) is meaningless; and he also mentioned that the Cybercab announced at the previous Robotaxi conference will be mass-produced in 2026, with an annual production capacity of 2 million units, produced in multiple super factories together, and the final production volume can reach 4 million.

When this information came out, many people were stunned: What is the background of this car in 2025, and is there still the ultimate $25,000 affordable car? Here, let me summarize the timeline and share my understanding:

(The affordable model set to be launched in the first half of 2025 has not been named yet. To avoid ambiguity with subsequent statements, let's temporarily name it Model 2.5)

Let's first recall what Tesla said during the first-quarter report this year (refer to "FSD contributes a stroke of genius, who still says Tesla is 'paper mache'?"):

"These new models, including more affordable versions, will use our next vehicle manufacturing platform, as well as our current platform, and will be manufactured on the production lines of existing models. This update may result in a reduction in the expected cost reduction rate, but it will allow us to cautiously increase sales growth with higher capital investment efficiency during uncertain periods. This will also allow us to maximize the utilization of our current nearly 3 million maximum annual production capacity, ensuring a production increase of over 50% compared to 2023 before investing in new production lines."

And the latest information from the conference call confirms our analysis:

Compared to Tesla's previous strategy of cost reduction through technological innovation when launching the Model 3/Y, leading to a revolutionary disruption and becoming a global hot-selling model, the upcoming Model 2.5 set to be released in 2025 may just be a transitional model in the midst of Tesla's transition between two major growth cycles (a period of stagnation), rather than a revolutionary model driven by cost-reducing technology innovation (like the X/S that pioneered the era of electric vehicle manufacturing, and the 3/Y that marked the era of electric vehicle popularity).

Our reasoning for this judgment is as follows:

① It is expected that the Model 2.5 will still be based on the existing manufacturing platform:

Originally, Tesla had high expectations for the Model 2 to be a super hot-selling model, with preparations for a production capacity of 5 million units (2 million in Mexico, 1 million each in China and Europe, and possibly another 1 million at future sites).

However, based on the current production capacity of Tesla, the planned Mexico factory scheduled to start production in 2025 is facing delays and may be postponed to the end of 2026 or 2027. This means that Tesla's Model 2.5 will utilize the current factory/current production capacity, and the existing manufacturing platform (the Model 3/Y's manufacturing platform).

According to our information, the production cost of a car is closely linked to the manufacturing platform (the platforms used for Tesla's Model S/X and Model 3/Y are different), and the use of the existing manufacturing platform also means that the cost reduction for this Model 2.5 model will not be as significant, aligning with Tesla's statement that the cost reduction may not be as large as originally expected.

② Roadblocks in cost reduction through technology: Tesla's strategy for the successful Model 3/Y has always been to achieve cost reduction through technological innovation, enabling more affordable pricing while maintaining a certain level of technological advancement, thus creating a hot-selling model. For example, introducing more efficient production processes such as integrated die-casting technology and CTC technology to achieve cost reduction.

For this Model 2.5 version, Tesla initially had the same strategy:

a. In the crucial battery technology for electric vehicles, Tesla initially attempted to improve battery performance (increasing battery density and range) by developing and producing the 4680 battery in-house, while also controlling the profits of upstream battery manufacturers to achieve cost reduction.

However, the production process for the 4680 battery has been plagued by low yield rates, making it economically unviable. Currently, Tesla's progress in producing the 4680 battery remains slow, with most batteries still being outsourced.

b. Achieving cost reduction through more efficient production processes: Tesla previously disclosed a revolutionary "unboxed manufacturing strategy" - assembling the body in specific areas simultaneously, then assembling all components together.

And according to the latest product plan in the third-quarter report, this technology will be used on Robotaxi, and there is no mention of it being used on the Model 2.5. It is expected that this production process will take time to materialize.

So, whether it is due to the delay in self-produced batteries or the difficulty in immediately implementing a more efficient production process, it indicates that Tesla's revolutionary cost-reducing technological path is facing obstacles.

③ Musk's Strategic Shift:

In this conference call, a very important but possibly overlooked point: when asked about when Tesla will launch a non-Robotaxi regular version priced at $25,000, Musk said, "basically I think having a regular $25K model is pointless, it would be silly, it would be completely at odds with what we believe."

In fact, the implicit meaning is that simply launching a $25,000 regular version is meaningless. The future of cars will be driven by autonomous driving, reflecting Musk's strategic shift:

The electrification technology path has basically reached its peak, and another disruptive electrification technology revolution is not easy to achieve. Simply reducing costs and offering lower prices cannot constitute the core competitiveness of a model (of course, it is also difficult to surpass BYD). Musk believes that the real next-generation models must be driven by advanced autonomous driving technology, with a technological revolutionary push for a long product cycle. This is clearly not something that can be achieved quickly, at least it is difficult to see on the Model 2.5 in the first half of 2025.

④ Sales Guidance Implies Not a "Hot-selling" Model Definition:

From Tesla's sales guidance for next year, although the expected sales growth is projected to reach 20%-30%, if we assume that the sales of existing models remain unchanged, it implies that the sales of this model in 2025 will be around 360,000 to 550,000 units. Although it exceeds market expectations, it clearly does not meet Tesla's consistent definition of a "hot-selling model" (compared to the previous preparation of 4 million units of capacity for the Model 2).

In summary, considering that this Model 2.5 is based on the existing vehicle production platform and facing obstacles in cost-reducing technology, while also not meeting Musk's definition of a revolutionary hot-selling model for the next generation, this model is most likely intended as a transitional product for stable deliveries and stock prices, and cost reduction is not driven by technology, but more likely a selectively de-contented version.

Therefore, it is highly probable that Tesla's pace of new model releases next year will be as follows:

Since this model is produced based on the Model Y vehicle platform, it is likely that this model will be a variant similar to a de-contented version of the Model Y, with a pricing naturally lower than that of the Model Y, but probably not as low as the previously mentioned $25,000At the same time, because this stripped-down version of the car may potentially cannibalize the existing Model Y sales, causing existing Model Y owners to delay their purchases due to waiting, the pace from the official release to delivery of this car should be very fast.

Meanwhile, Tesla is expected to launch an updated version of the Model Y (code-named Juniper) to stabilize Model Y sales. Based on the information Dolphin has learned so far, Juniper is likely to be an upgraded version of the existing Model Y (longer wheelbase, possibly changing from 2 rows to 3 rows, and upgrading battery capacity).

However, what surprised Dolphin is that Tesla has prepared excess capacity for the Cybercab prototype on the Tesla Robotaxi: Cybercab can be mass-produced in 2026, with an annual production capacity of 2 million units, produced in multiple super factories together, and the final volume can reach 4 million!

Dolphin tends to believe that Tesla's true next-generation model is likely to be this Cybercab, and Dolphin's reasons are as follows:

① Timing: The mass production time in 2026 gives Tesla's next-generation model relatively sufficient time to prepare.

② Capacity preparation: Tesla has prepared a production capacity of 4 million units for this car, which coincides with the 4 million units of capacity prepared by Tesla for the next-generation Model 2 at that time, fully meeting the definition of a "hot-selling car."

This capacity is not just prepared for ride-hailing business, with a high possibility of selling to end consumers.

③ Technological preparation: In terms of electrification technology, Cybercab adopts a new round of unboxed manufacturing strategy in production technology, which can further reduce production costs for Cybercab.

At the same time, the launch of Tesla's Cybercab in intelligent technology also means that Tesla's autonomous driving technology is basically mature, which also perfectly fits Musk's definition of the next-generation model: Musk believes that a truly next-generation model must be driven by advanced autonomous driving technology, with technological revolutionary significance to promote a long product cycle.

④ Pricing: The pricing of Cybercab at launch is below $30,000, and the cost reduction on the next-generation manufacturing technology side may further lower the pricing. However, once Tesla's closed-loop integration of software and hardware is formed, the consolidation of its technological leadership position, the $30,000 pricing is enough for users to pay.

Dolphin will also soon provide a detailed analysis of the Tesla Robotaxi business in the next part, analyzing the essence of the Robotaxi business and the true purpose behind Tesla's layout in this business. Stay tuned!

For Dolphin's historical articles, please refer to:

Financial Report Analysis on July 24, 2024: "Tesla: 'AI Pie' Sounds Good, but Reality is Too Tough"

Financial Report Conference Call on July 24,2024: "Expected annual capital expenditure to exceed $10 billion, will continue to strengthen investment in AI chips"

Financial Report Analysis on April 24, 2024: "FSD makes a significant contribution, who still says Tesla is "paper tiger"?"

Financial Report Conference Call on April 24,2024: "Will the next generation model Model 2 be launched ahead of schedule?"

Financial Report Analysis on January 25, 2024: "Tesla without the AI facade: the endless price hikes and unstoppable bleeding"

Financial Report Conference Call on January 25,2024: "Tesla fourth-quarter minutes: Sales for 24 years fall short of "50%", but expenses are still on the rise"

Hot Review on December 1, 2023:《Tesla Cybertruck: Priced too high, but low in economy》

Financial Report Analysis on October 19, 2023: "The Moment of Bursting the Bubble! Tesla, the Reality is Harsh"

Financial Report Conference Call on October 19, 2023: "CT Climbing Slowly, Slow Factory Construction in Mexico, Musk's Fear of Bankruptcy"

In-depth Analysis on October 12, 2023: "FSD Autopilot: Can't Support Tesla's Next Valuation Miracle"

In-depth Analysis on September 22, 2023: "The Lion King Meets the Wolf Pack, Can Tesla 'Keep an Eye on Home'?"

In-depth Analysis on September 19, 2023: "Tesla: How Far is Musk's 'Trillion-Dollar Empire Dream' from Reality?"

Hot Review on September 1, 2023: "New Model 3 Goes on Sale, Price Increases Instead of Decreases?"

Financial Report Analysis on July 20, 2023: "Trillion-Dollar Tesla, Only Die-Hard Fans Dare to Buy"

Financial Report Conference Call on July 20, 2023: "Tesla Minutes: Gross Margin Lost, Tesla May Continue to Lower Prices"

Financial Report Analysis on April 20, 2023: "Tesla: Big Year of Promises, Small Year of Implementation, 'Long-term Companion' Is Too Difficult"

Financial Report Conference Call on April 20, 2023: "Tesla: Confidently Selling Cars at Zero Profit, Harvesting with Autonomous Driving"

Financial Report Analysis on January 26, 2023: "Reshaping the Tesla Story, Testing the Moment of Faith!"

Conference Call on January 26, 2023: "Tesla Minutes: 'No Rivals Even with Binoculars for Autonomous Driving, The Second Tesla Might Be in China'"

Financial Report Analysis on October 20, 2022: "Fatal Question: When Demand is Insufficient, How Can Single Car Profitability be Maintained?"

Conference Call on October 20, 2022: "Minutes: 'Internal Combustion Engine Cars Are Doomed, No Production Cuts at Any Time'"

Financial Report Analysis on July 21, 2022: "Without the Shanghai Factory's Lifeblood, What Can Tesla Rely On?"

Conference Call on July 21, 2022: "Musk: Constant Price Increases, I'm Unfazed"

Viewpoint Update on June 6, 2022: "Massive Shake-up in US Stocks, Were Apple, Tesla, and NVIDIA Wrongly Slaughtered?"

April 21, 2022:"New Energy Thundering, Tesla Continues to Advance Steadily"

April 21, 2022: "New Factory Capacity Climbing, Tesla Will Deliver 1.5 Million Vehicles in 2022 (Meeting Minutes)"

Opinion Update on February 28, 2022: "Scattered Hearts, Investing in Tesla with 'Safety First'"

Conference Call on January 27, 2022: "Tesla: Musk Reiterates the Importance and Value Potential of FSD (Conference Call Minutes)"

Earnings Review on January 27, 2022: "Tesla, the Unstoppable Force, Will Take a Midterm Break?"

Opinion Update on December 6, 2021: "Musk Sells Tickets to Pay Taxes, Where Will Tesla's Stock Price Go?"

Conference Call on October 21, 2021: "Tesla: Annual Sales of One Million is Within Reach, Will Musk Let Go?"

Earnings Review on October 21, 2021: "Tesla: Cathie Wood Shouts $3000, Is the Sky the Limit?"

Conference Call on July 27, 2021: "Tesla Q3 2021 Performance Conference Call Minutes"

Earnings Review on July 27, 2021: "Tesla: Not the Most Bullish, Only More Bullish!"

Conference Call on April 27, 2021: "Tesla 2021 Q1 Performance Live Minutes"

Financial report review on April 27, 2021 "What to expect after Tesla's uneventful quarterly report?"

In-depth analysis on June 3, 2021 "Tesla (Part 2): Misjudgment or overvaluation, where does Tesla's story go from here?"

In-depth analysis on May 21, 2021 "10 years, 300 times growth, how much longer can the 'magical' Tesla continue?"

Risk disclosure and statement of this article: Dolphin Research Disclaimer and General Disclosure