How Tesla is Looking to Cut Manufacturing Costs in Half

Tesla’s recent Investor Day event brought with it a few announcements, including the automaker’s plans to construct a new Gigafactory in Mexico. The plant comes as a part of Tesla’s hopes to increase its production numbers even more than it has in the last few years — and ultimately to reduce its manufacturing costs in the coming decade.

Above: A Tesla Model X (Image: Casey Murphy / EVANNEX).

At the event, CEO Elon Musk told shareholders that Tesla expects to cut manufacturing costs in half, partially through an updated set of manufacturing processes, and through its next-generation vehicle platform planned for production at Giga Mexico (via Automotive News). In the next decade, Tesla hopes to reach an annual production capacity of 20 million units, far higher than the 1.3 million sold in 2022.

That scale of production is expected to help Tesla unlock vehicles with sub-$30,000 sticker prices, comparable to a traditional gas car such as the Toyota Corolla. Additionally, this is thought to help increase mainstream electric vehicle adoption, as more and more consumers are able to afford the updated pricing models.

"The desire for people to own a Tesla is extremely high," Musk said at Investor Day. "The limiting factor is their ability to pay for a Tesla."

Many have referred to the concept of an affordable Tesla as the “Model 2,” and analysts expect it to cost between $25,000 and $30,000. Analysts with investment firm Bernstein have pointed to the competition Tesla is already facing and aren’t fully convinced the automaker will reach its targets on upcoming sales goals.

"Tesla is unlikely to ramp up new models fast enough to meet volume expectations of 2.4 million in 2024, especially since the next-gen platform appears to still be in the design phase," Bernstein wrote. "Moreover, we believe that price cuts underscore the highly competitive nature of the auto market, where sustained high margins and high volume is unprecedented."

The plan to shift toward becoming a higher-volume auto manufacturer was discussed by several Tesla executives at Investor Day. In addition, one of Musk’s past “Master Plans” for the automaker detailed the company’s long-term strategy of selling one vehicle, then using the profits to create a more affordable car, then doing the same with the profits from that vehicle to make an even more affordable car, and so on and so forth.

Higher volumes of auto production mean lower manufacturing costs, as pointed out by, Lars Moravy, Tesla’s vice president of vehicle engineering. During the event, Moravy emphasized how crucial manufacturing and a new-generation EV platform would be to the company’s ability to deliver on long-term production targets.

"If we are going to scale the way we want to do, we have to rethink manufacturing again," Moravy said. "As part of the master plan, we have to make a step change in cost.”

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