Tesla Inc. announced on Tuesday a strategic shift towards producing more affordable vehicles using its existing factories, putting its plans for new manufacturing facilities in Mexico and India on hold. The decision comes as Tesla aims to increase production by 50% from 2023, reaching close to 3 million vehicles, before considering further investments in new production lines.
“This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times,” Tesla stated.
The world’s leading electric vehicle (EV) maker’s decision was well-received by investors, with Tesla’s shares surging 12% in after-hour trading, despite the company’s quarterly results falling short of financial targets.
Elliot Johnson, Chief Investment Officer at Evolve ETFs, which manages nearly $6 billion in assets including investments in Tesla and other EV makers, commented on the company’s new direction. “I think it’s a positive that he’s not just barreling ahead with an expansion plan, ignoring the challenges in the market,” Johnson said.
This announcement follows a recent Reuters report that Tesla had abandoned plans to launch its affordable Model 2 vehicle, expected to cost $25,000 and manufactured in Texas, Mexico, and another undisclosed location. Tesla CEO Elon Musk had dismissed the Reuters report, but Tuesday’s announcement did not directly address it.
Instead, Tesla hinted at new unidentified models, diverging from Musk’s previous statements about a cheaper new model with “revolutionary manufacturing technology” set to launch in the second half of 2025.
Lars Moravy, head of Tesla’s engineering, acknowledged the risks associated with new manufacturing processes and production lines. He described the company’s strategy shift as a move towards efficiently building low-cost vehicles using existing facilities.
Musk’s anticipated meeting with India’s Prime Minister Narendra Modi, where major investments in an affordable auto factory were expected to be announced, was canceled last minute by Musk due to “very heavy Tesla obligations.”
While Musk had previously confirmed plans to build a factory in Mexico and commence initial construction last year, Tesla remained silent on its future plans for these locations when approached for comment on Tuesday.
In contrast, Tesla’s smaller competitor Rivian announced last month that it would produce its more affordable R2 electric SUV at its existing U.S. factory, accelerating deliveries scheduled for the first half of 2026. Rivian had previously planned to manufacture the R2 at a new $5 billion plant.
Tesla’s pivot towards affordable vehicles underscores the competitive landscape of the EV market and the challenges faced by automakers in balancing expansion plans with cost-efficiency and market demand. As Tesla reevaluates its manufacturing strategy, industry analysts and stakeholders will closely monitor the company’s next moves in this rapidly evolving sector.
