Austin, Texas: Tesla revealed ambitious plans on Wednesday to introduce new, more affordable electric vehicle models in the first half of 2025, while also preparing to test a paid autonomous car service in June. Despite quarterly results falling short of Wall Street expectations, the announcement spurred investor optimism, sending Tesla shares up by 4%.
The electric car company, led by CEO Elon Musk, has faced pressure following a dip in deliveries last year. With increasing competition and high borrowing costs, the company is under scrutiny to accelerate its efforts in offering lower-priced models and advancing autonomous vehicle technology, which Musk views as a key component of Tesla’s future growth.
“We are aiming to have Teslas on the road with no one in them by June in Austin,” Musk said during a call with analysts and investors, confirming that the company would start testing its fully autonomous vehicles, though with caution to ensure safety for passengers and the public. He did not provide further details about the structure of the paid autonomous car service, nor did he clarify specific pricing, size, or specifications for the upcoming budget-friendly models.
Tesla’s “Full Self-Driving” (FSD) software will undergo unsupervised tests in various states, including California, throughout the year. Musk noted that older Tesla models might require hardware upgrades to support full self-driving capabilities.
Tesla has made significant strides in reducing the cost of manufacturing its vehicles. The company reported that, in the fourth quarter, the average cost of materials and labor for building its cars reached its lowest level ever, helped by reduced raw material costs. According to Reuters, the cost of producing a Tesla vehicle has dropped from nearly $39,000 two years ago to approximately $33,000 today.
While the company has previously faced delays with product launches, analysts have expressed positivity about Tesla’s progress in reducing production costs and its commitment to meeting deadlines for new, more affordable models.
In contrast to earlier plans to develop a new, cheaper vehicle platform, Tesla has decided to leverage its current electric vehicle platform and production lines to produce budget-friendly cars. This shift follows the company’s abandonment of the “Model 2” project, which was initially intended to serve the mass market.
Tesla also confirmed that its robotaxi project is slated for commercial-scale production in 2026 at its Texas factory, a long-term goal that has attracted significant attention. Although some analysts are optimistic about the company’s path to full autonomy, Musk tempered expectations by noting that older Teslas would require upgrades to support the full self-driving system.
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Tesla has also been using cheap financing options to stimulate demand for electric vehicles, a strategy that analysts predict may negatively impact profit margins as the company absorbs the effects of high interest rates. Tesla’s fourth-quarter profit margin from vehicle sales, excluding regulatory credits, fell to 13.59% from 17.05% in the previous quarter, which was below the 16.2% margin Wall Street had anticipated.
Tesla’s revenue for the October-December quarter reached $25.71 billion, falling short of analyst expectations of $27.27 billion, according to estimates compiled by LSEG. Adjusted earnings per share stood at 73 cents, lower than the anticipated 76 cents.
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The company’s first annual drop in vehicle deliveries last year was attributed to rising borrowing costs and intensifying competition. Companies like China’s BYD (002594.SZ) and European manufacturers such as BMW (BMWG.DE) and Volkswagen (VOWG_p.DE) have launched lower-priced models to capture market share.
Looking ahead, Tesla expects its vehicle business to return to growth in 2025 after a slight decline in 2024. Musk had previously forecast vehicle sales growth of 20% to 30% in 2025, though this projection was not reiterated in the latest results.
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Tesla is also grappling with potential risks related to tariffs, especially with U.S. President Donald Trump’s proposed import duties on vehicles from Mexico, Canada, Europe, and other trading partners. Tesla CFO Vaibhav Taneja acknowledged that such tariffs would likely impact the company’s business and profitability, as it continues to rely on overseas suppliers.
Despite these challenges, analysts like Garrett Nelson of CFRA Research are encouraged by Tesla’s autonomous vehicle prospects and positive growth projections for the energy storage business. Tesla has forecasted a 50% increase in deployments for its energy storage unit, which builds systems to enhance the resilience of the electricity grid.
