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Tesla plans cheaper models as it outlines production cost cuts

Tesla's new Bournemouth EV store

Tesla has outlined a strategy to halve its production costs and speed up the time it takes to build a new car, which will lead to the launch of more affordable models.

The efficiency measures were detailed in an investor call on Wednesday. 

The car maker stopped short of revealing any new models during the presentation, but it's expected that Tesla will soon launch a compact car to sit beneath the Model 3 with much lower price point.

Elon Musk, Tesla chief executive, said affordability was the biggest barrier to Tesla reaching a far bigger market. Following recent price cuts for its vehicles, he said: “We found that even small changes in price have a big impact on demand — very big."

The price cuts were said to have had "an immediate impact", especially in China where the company has increased its market share.

Lars Moravy, head of vehicle engineering at Tesla, explained that the new, “large-volume” vehicle would be produced at a number of the company’s plants, including a new facility in Mexico.

Tesla also confirmed that production of the Cybertruck pick-up will commence later this year.

Commenting on Tesla's announcement, Jim Holder, editorial director at What Car?, said: “One of the barriers to mass adoption of electric vehicles is price as EVs continue to command a premium over their internal engine counterparts. Tesla’s announcement to halve assembly costs for its next-generation cars suggests this gap will soon disappear, though details of its affordable electric vehicle and its entry price remain under wraps for now. What is clear is that for markets like the UK, an affordable electric vehicle with efficient battery technology is key if the 2030 and 2035 Government targets are to be met.

“A target of 20 million vehicles produced per year by 2030 is very ambitious, more than a 10-fold increase from Tesla’s current output, especially when considering the likes of Toyota and Volkswagen Group produce on average between 10 and 8 million new cars a year each. Tesla has defied the odds before, though.”

Tesla proved that it remained the “EV brand to beat” in 2022, after Q4 deliveries drove a 59% rise in profitability for the brand.

Musk predicted that volumes could soar from 2022’s 1.3 million units to two million globally this year after a late rally which saw it deliver almost a third of its full-year UK volume in December alone.

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