Plans to start production on cheaper cars before second half of 2025

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Tesla Inc. is accelerating the launch of more affordable models in a bid to arrest a deterioration in its profit margins and sales.

The electric-vehicle maker plans to start production on the cheaper cars before the second half of 2025, when it had previously pledged to begin making them. The Elon Musk-led company has been coping with a sales slump as EV demand falters.

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Tesla’s adjusted earnings per share came to 45 cents in the first three months of the year, compared with Wall Street’s expectation of 52 cents a share. Revenue fell nine per cent to US$21.3 billion, according to a statement Tuesday, in line with its first year-over-year drop in deliveries since 2020. That was still short of the US$22.3 billion analysts expected.

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Tesla’s shares rose seven per cent as of 4:44 p.m. after regular trading in New York. The stock tumbled 42 per cent this year through Tuesday’s close, the worst performance in the S&P 500 Index.

Tesla also kept its near-term growth expectations in check, saying deliveries may be lower than last year. “In 2024, our vehicle volume growth rate may be notably lower than the growth rate achieved in 2023, as our teams work on the launch of the next generation vehicle and other products,” it said.

The EV maker’s strategy has been muddled for much of 2024. It’s spent the last year slashing prices across its lineup in an effort to boost sales volume, only to find demand for its vehicles slowed.

Adding to Tesla’s woes has been Musk’s abrupt decision to go “balls to the wall” on a dedicated robotaxi for which the company lacks regulatory approval and possibly the technological capability. Investors had expected the company to instead focus on a new, US$25,000 model that Musk had promised to go into production before the end of next year.

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Tesla gave no timeline, but said it’s continuing to pursue a new module-based “unboxed” manufacturing process for its promised robotaxi model. In a reflection of leaner times, Tesla noted those new models will be built on existing manufacturing lines at current factories to maximize capacity and grow “prudently.”

It wasn’t immediately clear if Tesla’s “more affordable models” pledge was a reference to the long-discussed low-cost car, sometimes dubbed the Model 2. Many investors see that as way to help generate new enthusiasm around its lineup and draw new customers.

“The affordable vehicle is still planned to go into production,” said Seth Goldstein, an equities strategist at Morningstar.

The carmaker remains the dominant EV maker in the U.S. market, but its profits have been under pressure for several quarters. Tesla’s automotive gross margin — a key measure of profitability — was 16.4 per cent in the first quarter, smaller than the 17.6 per cent Wall Street expected. That’s far from the 30 per cent peak margin it reported at the start of 2022.

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Earlier this month, Tesla initiated its largest-ever round of layoffs, cutting more than 10 per cent of positions — though Bloomberg has reported the company may ultimately let go some 20 per cent of its staff. At the same time, two senior executives quit, raising questions about who is in charge of key initiatives. Musk will likely face tough questions on a call with analysts scheduled for 4:30 p.m. local time in Austin, where Tesla is based.

—With assistance from Richard Clough.

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