Is Tesla Even a Car Company, Anymore?

We may never get a super affordable Tesla.

The electric-car maker has canceled its longstanding plan to build a $25,000 vehicle, usually called the Model 2, Reuters reported on Friday, killing a product that was — until today — thought to be central to the company’s growth.

Heatmap was unable to independently confirm Reuters’ reporting. Tesla does not have a traditional communications office, and an email to a generic press address went unanswered. Tesla’s stock was down more than 3% when markets closed.

But the cancellation, if true, is an earthquake. For years, Tesla has told investors that its path to becoming a mass-market auto brand ran through building ever-cheaper cars. At the center of that story was Tesla’s forthcoming $25,000 car, an accessible vehicle that would allow electric vehicles to compete with the cheapest gas-powered new cars on price.

But with the $25,000 car canceled, Tesla’s future as a car company is now a question mark.

Tesla has denied the reporting. In a post on the social network X, Elon Musk said: “Reuters is lying (again).” He later added: “Reuters is dying.”

Musk is not nearly as trustworthy as a normal CEO might be: He has a long history of posting evasions and untruths. The Reuters story cites internal emails and memos from Tesla substantiating the cancellation. According to the report, Tesla’s managers told employees and outside suppliers to stop all work on the project in early March. The company is still planning to build a self-driving “robotaxi,” the story said, an electric car with no steering wheel that will work entirely on the carmaker’s Full Self Driving technology and which was supposed to be built on the same platform as the Model 2. Several hours after the story’s release, Musk claimed on X that the robotaxi would debut on August 8.

But with the robotaxi lies Tesla’s first big problem. The Full Self Driving software is plagued with problems and is generally not thought to be safe for full-time operation; after a recall last year, Tesla now counsels owners that the driving software should be “supervised.” Earlier this year, The Washington Post reported that a Tesla recruiter was using the Full Self Driving feature when his car ran off the road and struck a tree, killing him, in Colorado in 2022.

Teslas, in other words, are not fully self-driving, and it’s not clear that with their current autonomous technology — which relies entirely on cameras and computer vision — they ever will be. (Alphabet’s successfully self-driving Waymos, which are already on the road in California and Arizona, use a more expensive setup that requires Lidar sensors and GPS maps.) Those technological shortcomings raise fairly obvious questions about how viable a robotaxi without a steering wheel might actually be.

For years, observers could talk themselves into ignoring those problems because the mass-market Model 2 was on its way. Tesla seemed to have struck some kind of internal bargain whereby it would try to build a hyper-affordable electric car (the project that seemed to motivate many non-Musk employees) on the same chassis and platform that it would use for the robotaxi (the project that clearly motivates Musk). With the cheap car canceled, however, only the problematic robotaxi remains. One way to read the canceled Model 2, in other words, is that Musk has taken total control over the company’s strategic planning and no longer cares to hedge any of his bets.

That’s a critical problem for Tesla, because Musk holds lots of jobs. He is the CEO and product architect at Tesla; the CEO and chief engineer at SpaceX; the owner, CTO, and executive chairman at X; and the founder or cofounder of the Boring Company, xAI, and Neuralink. At best, Musk has been distracted. The mainstays of Tesla’s line-up — the Model 3, Model Y, and Model X — have gone years without a major update. The Cybertruck went on sale last year, but Tesla has struggled to scale up its production; Musk has gone so far as to say that “we dug our own grave” with the Cybertruck. On top of that, the stainless steel behemoth isn’t exactly new: It debuted in 2019, just a few months after Tesla announced the Model Y crossover.

That aging line-up has started to hit Tesla’s financials. From January to March, it sold only 386,810 vehicles, many fewer than analysts expected and 9% below what it sold during the same period a year earlier. It also produced 47,000 more cars than it sold, suggesting that it is beginning to hit the limits of consumer demand for its current menu of cars. Now, it has seemingly canceled the cheapest product in its pipeline, suggesting that it will need to survive for several more years with no new toys to speak of.

“For four to five years, they haven’t worked on anything that they plan to put out. For a car company, you don’t see that,” Corey Cantor, an EV analyst at the market research firm BNEF, told me.

That failure will reverberate around the world. For now, it means that the entry-level electric vehicle market remains securely in the hands of Chinese companies. The vertically integrated automaker BYD has grabbed headlines and terrified Detroit with its $9,000 electric Seagull hatchback, but it is only one of many potential firms vying in the space. The Chinese smartphone maker Xiaomi says that it has received more than 100,000 orders for its $29,000 SU7 sedan, which debuted last week. The Chinese automakers Nio, Geely, and Great Wall have their own electric models. Without a sub-$30,000 Tesla, these electric models will compete — for now — primarily with gas-burning sedans like the Toyota Camry or Honda Civic.

In the American car market, where almost no Chinese brands operate, the consequences will be different. According to BNEF’s analysis, a big share of the new car market will be won by whatever company can sell an EV for $30,000 to $37,000, Cantor told me. “There’s basically 36% of the market that [Tesla] is unable to reach today,” because it doesn’t sell a Model 3 for much less than $38,000, Cantor said. (Going below $30,000 unlocks only a final 13% of the market, he said.)

Hyundai and Kia, which when taken together make up the country’s No. 2 best-selling EV brand, will be able to grab even more market share from Tesla. (Why treat them as one entity? Hyundai owns 40% of Kia, and the companies collaborate closely on vehicle design and engineering.) Hyundai already sells the market’s cheapest electric SUV, the Kona Electric, which starts at $34,050. Tesla’s Model Y crossover, by comparison, is $37,490 after a federal tax credit is applied. When Kia opens a factory in Georgia later this year, it should qualify for more tax credits, potentially letting it sell a car approaching the $30,000 mark.

Tesla may still be planning to drive down the cost of its Model 3 sedan, which today starts at $38,990. But the fact that Hyundai and Kia exist, frankly, somewhat blunts what Tesla’s failure means for decarbonization. Although it would of course be good for more companies to sell uber-accessible EVs, the marketplace should have options even if Tesla stumbles.

So perhaps the biggest question is what lies ahead for Tesla as a company. With a market cap of half a trillion dollars, even after multiple substantial sell-offs, Tesla remains the world’s most valuable car company; it is priced like a tech company, with its shares selling for 38 times its earnings. (Ford’s stock, by comparison, is a mere 12 times the size of its earnings.)

Adam Jonas, an analyst at Morgan Stanley, has argued that Tesla will evolve away from being a car company; its energy storage and charging businesses seem to be going decently. For his sake, Musk has described the company as between “two waves” of growth, with the next big swell coming next year as new cars go on sale.

But far more concerning, Cantor said, is the possibility that Tesla finds itself stranded between two business strategies. Tesla no longer has the prestige of a luxury brand like Mercedes or BMW, and its purportedly high-end Model S can’t match the specs of a Lucid Air or Porsche Taycan sedan. If it can’t compete with a low-margin, more volume-oriented carmaker like Toyota, Volkswagen, or BYD, either, it might soon be stuck in the middle of the EV market, defending an eye-watering share price with no new arrows in its quiver. Anyone in that position might be expected to have some range anxiety.