Tesla Did Introduce The Model 2 This Week At $26,000, But Kept It Quiet

Tesla’s “Investor Day” caused much disappointment — even tanking Tesla stock — because there was no big announcement as expected, notably of their new low-cost, next generation vehicle. However, they actually let out a number of important details abut the vehicle, most of what you need to know — other than when you will be able to buy it.

Tesla’s name is probably not “Model 2.” The Model 3 should have been the Model E to spell out “SEXY” but other cars use the name “Model E.”

It’s going to cost well under $30,000 sticker price

While there were times when, in theory, you could get a Model 3 for $35,000, today the base model is $43,000. Tesla tells you on their web site that this is really around $29,000 after the rebates and gas savings. They don’t include maintenance savings in that.

Tesla later put up a slide outlining the total cost of ownership of the new model car over 5 years, compared to a Corolla and a Model 3.

They already believe that a Model 3 is cheaper to own than a Corolla, but it has a high up-front cost and lower operating cost.

On this chart we can see that Tesla has stated they expect the total cost of ownership over the first 60,000 miles (5 years) will be precisely 71% of that for the Model 3. That includes about $2,000 of electricity and very little maintenance — probably 1.5 to 2 sets of tires at $800 each and some other very minor items. These should not differ very much between the cars, though the smaller model may be a bit lighter and use less expensive tires. The other major costs will be registration fees, insurance and most of all, depreciation.

Now, for Tesla to have the Model 3 beat the Corolla, they are not using the methodology of major sites like Edmunds and Kelly Blue Book. Tesla’s 2021 Impact Report shows an estimate of around 63 cents/mile.

Depreciation/Taxes/Fees/Financing/Incentives – 44 cents Insurance – 10 cents Maintenance & Tires – 5.4 cents Energy – 3.4 cents

However, this report is for the Model 3 at a higher price, and without the federal $7500 tax credit. (The price in 2021 ranged from $39K to $43K.) Some components of insurance do vary with the value of the car as well. So we can roughly say that about 66% of the TCO after rebates is based on the cost of the car, though different cars may depreciate at different rates so we can’t be exact.

As such a rough back-of-envelope calculation suggests that for TCO to drop to 71% we should see a sticker price of the car around $26,000 — within range of the commonly suggested $25K price.

Of course, when you knock $7,500 in federal credits and state credits — $2,000 in California and up to $5,000 in Colorado — you’re looking at $13,500 plus fees out the door in Colorado for a new Tesla economy model. A model which also costs you half as much to operate. It’s hard to see any cost-conscious entry level car buyer going for today’s gasoline car prices.

Of course, while Tesla forecast a price of $35,000 for the Model 3, it didn’t really deliver on that, offering a car at that price for only a short time. So it’s possible that the cost forecast in their chart above will not be delivered on. But even something a bit more, like $30,000 before rebates, will be game changing.

How good a car?

At this price, it’s going to suck, right? Well, it’s not going to have the 250 mile range of a Model 3, but it probably will do around 200 using LFP batteries which have a very long life, and with which you can more easily use the full 100% of the range. With Lithium Nickel batteries found in the higher end cars, you try to only rarely charge the car up to 100%, though you can do it if you need it. With fast chargers every 50 miles on main highways, and charging at home, 200 miles is more than enough.

All through the presentation, Tesla emphasized their manufacturing philosophy — make it cheaper and better at the same time. They have not always delivered on that — when they removed ultrasonic sensors to save cost they took out parking assist, but they claim it will return soon.

All of Tesla’s efforts are to make the car a computer. The more of the car that is a computer, the more it runs on the economics of electronics — which means getting better and cheaper at the same time, not just a little, but by leaps and bounds.

Tesla is also applying this Silicon Valley philosophy to its manufacturing and design, and seems to be pulling it off.

At the top, you can also see how they predict they will make the entire power train of this car for around $1,000. At that price, plus battery pack, they may be able to make cars that are much cheaper than $26,000 for special needs.

We can predict Tesla’s new model will actually not be much worse than the original Model 3, and the Model 3 will probably get better to justify its higher price. Some things will get a bit cheaper, especially things Tesla doesn’t make, like upholstery, finish, tires and maybe sound deadening. It won’t feel like a luxury interior, but you won’t expect it to. The shape will remain similar, as required by physics.

A lot of the fancy features will be there in software. Software doesn’t cost anything to reproduce, but it costs money to write. Tesla plans to make money in its more expensive cars by giving you fancier software, not fancier hardware.

Today, you can pay $500 or $2500 for different laptop computers, of $200 or $1,000 for different phones. Those devices don’t differ in capability by the 5:1 ratio, in fact in many cases the cheaper device does a large fraction of what the fancy one does. Tesla will make cars work like that too. Think Apple, which sells the same hardware as others for higher prices by making the software that customers want more.

Of course, the superior charging network will work for you no matter what car model you buy, and right now it’s one of the prime reasons to buy a Tesla.

What about the van?

Here Tesla tells us they plan to sell 700 million of the new platform cars, along with 380M higher end sedans and 40M luxury sedans. They also forecast 300M of another vehicle, which appears to be a van, together with the Cybertruck.

Will this be a commercial van for delivery and work, or a minivan for families? That they didn’t say. But that’s what’s next.

Pre-orders are not yet available. But we know its cost, roughly what it will look like, and what features it will have.