What is Tesla's Model 2 and why India lost out

Today, during Tesla's first-quarter earning calls, the EV giant announced a fall of 55% in its first-quarter net income last year, marking its largest drop since 2012 - to which revenue also dropped down 9%, being worse when compared to last year with revenue. Elon Musk’s vision for Tesla has changed as the EV giant shifts their focus from Model 2 to new. (Photo by ETIENNE LAURENT / AFP)(AFP)

Following this, Tesla CEO, Elon Musk addressed the company's focus switch to “accelerate” production of new cheaper vehicles, and it aims to reposition itself on the market from Model 2. However, the company had to reverse this decision and stopped investments in a modular manufacturing plant in India.

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This is made just at the moment when Tesla adopts a new strategy of designing “new models” by early 2025 and using the existing manufacturing lines and platforms.

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What is Tesla's Model 2?

With the Model 2, Tesla aimed to penetrate the electric vehicle market while raising its production by 50% from 2023 to close to 3 million.

The EV giant said in a statement: “This update may result in achieving less cost reduction than previously expected but enables us to prudently grow our vehicle volumes in a more capex efficient manner during uncertain times.”

Musk announced the production of the company's first low-cost vehicles to be rolled off the belt, speaking at an investor event held recently, just before the scheduled date for the Model 2's debut.

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Tesla's engineering chief, Lars Moravy, indicated that their new step is to use just the production lines they have now and utilize those already available platforms. This is different from spending resources for the manufacturing processes, which promise a “revolutionary” mechanism, and more so as it cuts costs too.

Morvay said, “That engineering work, we're not trying to just throw it away,” and added, “We're going to take it and utilize it.”

“I think we've said all we will on that front,” Musk argued while addressing whether the new model would be a rehash version of Model 2 or not.

India factory plans cast into doubt

The decision to forego the Model 2 also impacted Tesla's plans in India, as Musk cancelled a meeting with Indian Prime Minister Narendra Modi, where he was expected to announce major investments in an auto factory for producing the Model 2.

Surprisingly, the Tesla boss confirmed his meeting with PM Modi earlier this month. Musk's visit was expected to be a win-win for both India and Tesla. He was expected to announce an investment of 2-3 billion dollars, to build a factory in India, in line with PM Modi's Made in India plans.

“Unfortunately, very heavy Tesla obligations require that the visit to India be delayed, but I do very much look forward to visiting later this year,” Musk cited.

However, the SpaceX CEO expressed that he will visit India later this year.

Notably, Tesla India's vice president, Rohan Patel stepped down just days (on April 15) before Musk postponed his visit to Delhi. Drew Baglino, vice president of powertrain and energy engineering, also left the company on the same day.

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Musk previously expressed Tesla's commitment to building a factory in Mexico. But now, with the new model, the company has not provided clarity on its plans for manufacturing facilities in Mexico and India.

Smaller peer, Rivian, known for its R1S SUVs and R1T pickup trucks, announced plans to produce its smaller, less expensive electric R2 SUVs at its existing US factory.