I've been saying this for a long time now. We need the Model Q
The main argument against this is that Tesla are already selling all the higher-priced cars they can produce and that a smaller car would cannibalise these sales
However, the TAM for MS/3/X/Y is limited, not only is it cost-based, but also demographic. These cars are way too big for many, especially outside the USA. Plus, the drop-off in these sales will come abruptly and Tesla should be ready to fill that gap when it comes, not wait until it happens then have a 2-3 year ramp-time
Maybe it could be developed behind the scenes and revealed when ready for production, like Apple "available as of next week", that would be fun
M3 is still way too big for most people in many parts of the world, and even with some cost-savings/margin squeeze, we're looking at, what, back to the $35k range? That's too much, needs to be sub $20k - 4680 battery price-reductions and manufacturing efficiency will make such a car feasible while maintaining high margins
The TAM for S3XY is indeed not infinite, but the current factories (Fremont, Shanghai, Berlin, Austin) at max output can IMO sell every S3XY-model they can produce indefinitely. Perhaps at slightly lowered prices but still with decent margins. Don't forget many business fleets replace their vehicles every 5 years tops, and Tesla has high brand loyalty, so I see a path to keep selling these luxury vehicles (i.e. >$50k).
If I just look around at all the BMW's, Mercedes, Audi, Porsche and Volvo cars on the roads - most of which fall into the same price range as the S3XY models and are just as big as 3's and Y's - it's just a matter of time before these OEMs lose sales to Tesla. (Yes, some buyers will never want a Tesla and stick with the Taycan or another fancy overpriced BEV from the OEM they are loyal to, but the more Tesla's there are on the roads, the more demand there will be).
The next generation Tesla vehicle platform consisting of smaller cars, will indeed be have orders of magnitude more demand, especially in Europe where roads are generally more narrow than in the land of the free, and there are actually historical cities with medieval layouts not adapted to American pickup trucks. (try driving through alleys in Rome, you'll be much happier in a small car like a Fiat 500 or so).
Elon has now hinted that the next vehicle platform could see production costs dropping by 50% compared to 3/Y.
Currently ASP is roughly $54k, with 27.9% gross margin = 15k profit per vehicle and 39k production cost. Let's make it $40k production cost to be conservative. (this is conservative either way since this consists of a mix of S/X and 3/Y, so the build cost of 3/Y is lower than $40k normally).
Half that production cost in next generation = $20k production cost. At ASP of $25k this would net 25% automotive gross margins, excluding software.
So I disagree that this will turn out like the promise of the $35k car.
Of course what used to be a $25k car five years ago is now a $35k car, so I wouldn't mind Tesla just selling the next generation car at a hefty premium/gross margin around $35k, but they'll have enough demand to compete with the smaller vehicle segments from other OEMs.
My biggest question in all this is, is if Tesla will double down on FSD and actually create the robotaxi first and only add a (more expensive) steering wheel version of the next generation vehicle if they see the need for it. If FSD is indeed going to happen and regulators allow it, then the most lucrative business decision would be to only sell robotaxi's, at a base price of $25-35k and FSD subscription available. Remember this from Autonomy Day:
"Can you share with us how much Tesla is spending on Autopilot or Autonomous technology by order of magnitude on annual basis?" - analyst
"It's basically our entire expense structure." - Elon
Of course FSD could take longer for regulatory approval (i.e. level 4-5 Tesla Network allowed IMO), in which case Tesla would have to either delay robotaxi production or add a steering wheel and call it a smaller car. I don't see the comments from Elon on the call yesterday as proof that the next generation will have steering wheels, but he didn't deny it also. If he truly believes in FSD soonish (and he apparently does), it would be logical to skip the hot-hatchback-Tesla-with-a-steering-wheel step:
- more profit from robotaxi
- more safety from robotaxi (and Tesla puts safety as their top priority).
I may have drifted a bit during this write up, and I don't want to be the dreamy hyper-bull per se, but if FSD regulatory approval would come by end of 2023 then robotaxi can start producing in 2024 and the world (and the stock) will be a different place.
Either way, autonomy or not, great things lie ahead for Tesla.
