Tesla cannot sell 20 million cars without new models
Elon Musk believes Tesla can hit 20m sales with just 10 models | Image: Getty Images
Elon Musk wants to double Toyota's global sales, but Tesla needs new cars for new customers
Tesla will fail to meet its target of delivering 20 million cars per year by 2030 unless it imminently introduces new models to bring more customers to the brand, a leading analytics firm has told Autocar.
During its 1 March Investor Day, labelled by some as disappointing for its lack of a new car reveal, CEO Elon Musk instead showcased new, highly efficient working processes that will drive down the cost of future vehicles and allow the US firm to grow its output.
But for the four-model car maker to go from 1.31m deliveries last year to almost 19 times that in only seven years, more than just new production processes are needed, according to the analyst arm of banking firm Bernstein.
Toyota, the world’s biggest car company, for example, last year sold just over 10m and it has a global reach stretching into nearly all markets, some of which it dominates entirely.
Currently, Tesla relies on its Model Y and Model 3 (1.25m) for the bulk of its sales – and that is expected to lessen, given their age, reckons Daniel Roeska, Bernstein’s lead automotive analyst.
“EV models have generally struggled to increase volume beyond the third or fourth year of introduction,” he said. “We struggle to see how Tesla can meet consensus expectations of 2.4m-2.5m [in 2024] without a new model.” Bernstein predicts the firm will hit 1.9m sales in 2023.
Tesla has already pressed the nuclear option to stimulate sales by cutting prices by as much as £8000 on the Model Y and Model 3. The firm reckons it can do this without harming its impressive profits because the cars are cheaper to build.
*Tesla's operating margin, %*
At Investor Day, chief financial officer Zach Kirkhorn revealed that Tesla had taken 30% of the cost out of building the Model 3 since 2018. “Cost reduction is deeply ingrained in our culture,” he said.
Tesla is now building cars from four global assembly plants and will add a fifth in Mexico. More will have to be built to fulfil Musk’s goal. But with more production capability comes more pressure to sell.
Its Berlin plant recently celebrated hitting 4000 Model Ys a week. But because plants are at their most efficient, and cost per vehicle is at its cheapest, when they are running as close to full capacity as makes sense, the pressure to sell becomes intense, which leads to spiralling price cuts.
In China, Tesla aimed to run its Shanghai plant at 20,000 a week in the first quarter after enacting price cuts, but weekly data seen by Reuters shows that demand for the Model 3 and Model Y there is slowing.
Tesla’s cost-cutting is reminiscent of “old-school” car makers, Renault CEO Luca de Meo said on his company’s recent earnings call. “Probably they entered into a loop, because they have a lot of production capacity,” he said. “We did it ourselves with combustion cars until a few years ago. We killed our business to push.”
The Renault-Nissan Alliance under former CEO Carlos Ghosn is probably the classic recent example of how growth-led expansion can kill profits if it’s not matched by customer demand.
However, at Investor Day, Musk was dismissive of any lull in demand for his company’s cars. “The desire to own a Tesla is extremely high,” he said. “The limiting factor is being able to pay for it.”
*Number of Teslas delivered each year*
Tesla’s intense search for economies of scale has led to a ruthless trimming of variety. It restricts options – except those that can be added via software updates – to speed up manufacturing and will digitally interrogate its cars to see how much those it does offer are being used. An opening sunroof was deleted because of this, said Tesla.
This aversion to variety, which strongly recalls Henry Ford and his quip about offering any colour so long as it’s black, extends to models as well as options. Musk said Tesla can hit 20m with just 10 models. “The number seems low,” said Roeska.
The trouble is that one or two sizes rarely fits all. “It’ll be very hard to launch a product and try to sell it globally in the next three to five years,” said one executive at a Chinese car maker competing with Tesla.
However, Tesla is diversifying. The “next-gen” Tesla is “not just one vehicle but multiple”, said Lars Moravy, head of vehicle engineering, indicating that the car maker is creating a scalable platform along the lines of Volkswagen’s MEB. There’s also the Cybertruck arriving this year, a niche vehicle largely confined to the US in terms of demand. The Roadster is another niche car somewhere in the plan.
The firm’s long-hinted-at push into smaller segments, which could be enabled by the next-gen platform, would give it access to a wider pool of buyers, though. Tesla’s average selling price last year was $53,000 (£44,000), so there is room to go lower.
Its production innovations and partnership with China’s CATL on cheaper lithium-iron-phosphate batteries could even allow it to make next-gen cars with a decent range and size while undercutting smaller EV rivals on price, achieving more global appeal.
The target with Tesla’s next car is to build it 50% cheaper than the current Model 3/Y, said Kirkhorn – something the firm believes it can achieve.
Even so, 20m is a lot of cars. Tesla is fighting against an increasingly fractured global car market where best-sellers stretch from pick-ups to city cars, depending on country, but one rule still applies: the newer the car, the bigger the consumer pull. As rivals strive to catch the current runaway global leader on electric sales, Tesla’s advantages will become fewer and fewer.
