Tesla’s highly-anticipated $25K car set to start production next year

Tesla (TSLA) - Get Free Report has reportedly told suppliers that it would like to begin production of a new electric vehicle — nicknamed “Redwood” — in 2025, according to Reuters.

Sources described the mass-market vehicle as a compact crossover.

Tesla, according to two of the sources, sent requests for quotes to suppliers for the “Redwood” model last year and expects to produce 10,000 “Redwood” vehicles weekly. Production would begin in June of next year.

Tesla did not immediately return a request for comment.

CEO Elon Musk has been discussing the merits of a cheap, next-generation EV on and off for several years. In 2021, he said such a product isn’t yet in the works.

But by 2022, Musk said that a cheaper EV ”would make a lot of sense. And we should do something.”

And at Tesla’s Investor Day in March of 2023, Musk unveiled Tesla’s next-generation platform, a new manufacturing system that will be used to produce the now highly-anticipated $25,000 next-gen vehicle.

The timing of the launch of the next-generation compact vehicles, especially in light of consistent misses from Musk on new product launches, was among the most-voted questions by investors in the lead-up to Tesla’s fourth-quarter earnings report Wednesday.

After announcing the Cybertruck in 2019, production proved more challenging than expected; the car was initially supposed to launch in 2021, but didn’t make its way to the company’s lengthy waiting list until late last year.

“The formula for decoding Musk is pretty simple. Take whatever time frame he has, and multiply it by two,” Deepwater Management’s Gene Munster said following Tesla’s 2023 Investor Day.

A source told Reuters that volume output is “more likely to begin in 2026,” adding that “they have been overly optimistic on most of their new product launches.”

Despite the potential for delays, Munster said last year that a $25,000 next-gen EV could potentially “double Tesla’s business.”

And Gary Black, managing partner of the Future Fund, has likewise been saying for months that a cheap, next-gen vehicle could act as a strong catalyst for the stock. Such a vehicle would allow Tesla to compete more directly with historically cheaper, gas-powered cars, while also expanding Tesla’s consumer base to a whole new segment of buyers, Black said.

Black said in response to reports of next-gen production beginning next year that “unlike most product launches, Tesla has no incentive to tell suppliers the $25k car will be ready by mid-2025 if it won’t be ready until 2026. The potential cannibalization of (the Model 3) is too high if it’s not ready on time.”

Munster: ‘A risk that’s not worth taking’

Tesla’s coming earnings call “just took on a new dynamic” in light of the report, Munster said.

He expects the company’s response to remain lacking in both details and timelines.

It would be difficult, Munster added, for Tesla to build a compact crossover with a price point distinguished from the Model 3 and Model Y vehicles. He suggested that the model in question might actually be the $30,000 sub-compact model, which Munster expects to be announced in 2025 and released in 2026.

Like Black, Munster believes that there is a risk here in hurting demand for existing models.

“My thinking is if they announce a cheaper version in 2024 that would cause a measurable pause in Model 3 demand this year, a risk that’s not worth taking given traditional auto is backing off competitively,” he said.

Musk: Mind-blowing production

Musk said in December that Tesla is “quite advanced” in its efforts to build a cheap, next-gen vehicle, adding: “I view the production line plans for that every week and I think the revolution in manufacturing that will be represented by that car will blow people’s minds.”

He called the next-gen platform “game-changing,” though he declined to share timeline or volume expectations.

Tesla delivered 1.81 vehicles in 2023, about in line with expectations.

NurPhoto/Getty Images

He did, however, indicate that the first production line for the vehicle will be at Tesla’s gigafactory in Texas, while the second will be at Tesla’s planned gigafactory in Mexico.

“The thing that’s most interesting about this is it’s a level of production technology that’s far in advance of any automotive plant on Earth,” Musk said at the time. “It’s going to be cool.”

Analysts are additionally looking for clearer guidance on price cuts and gross margins when Tesla reports earnings after the bell Wednesday.

Shares of Tesla, down 15% for the year, lifted slightly Wednesday morning. The stock more than doubled in 2023.

Contact Ian with tips via email, ian.krietzberg@thearenagroup.net, or Signal 732-804-1223.