According to a credible news source, Elon Musk allegedly terminated an internal assessment conducted by Tesla executives that revealed the company’s Robotaxi initiative was expected to incur losses, suggesting instead that it focus on its more affordable ‘Model 2’ option.
In January 2024, it was announced that Elon Musk had scrapped plans for an affordable electric vehicle built upon the company’s forthcoming ‘unboxed’ platform, also referred to as ‘Model 2’ or the ‘$25,000 Tesla’.
As an alternative, Elon Musk pushed for under his new Robotaxi, also known as Cybercab, to be built on a brand-new platform, and shifted plans for a next-generation affordable EV by constructing more affordable variants of the Model Y and Model 3 with reduced features.
Tesla’s pivot towards becoming a leading AI company, focused on revolutionizing the autonomous driving landscape, marked the culmination of a transformation that had been years in the making.
The downturn experienced by Tesla can be attributed to the paradigm shift triggered by Elon Musk’s vision, which has led to the company’s current predicament, where it has only introduced one new model in the past five years – the Cybertruck, which ultimately proved to be an industrial disappointment.
The Inside Story: How Tesla’s Decision-Making Process Led to Cancellation of Affordable Model and Shift to Robotaxi
The report details a meeting held at the end of February 2024, during which several Tesla executives urged Elon Musk to approve the production of the highly anticipated $25,000 Tesla model.
By the end of February 2024, following several years of contentious discussion surrounding the Mannequin 2, Elon Musk convened a meeting with various Tesla executives at the company’s headquarters in Palo Alto, California. The proposed $25,000 automotive remained a hot topic for discussion – a lingering opportunity to weigh the pros and cons of this vehicle, according to those involved? Musk’s top deputies passionately advocated for the fiscal prudence behind producing both the Model Y and the Robotaxi, a proposal that pitted competing interests against one another.
In 2020, following the debut of its next-generation battery, Elon Musk revealed plans to produce a $25,000 electric vehicle (EV) for 2020. Yet, by 2024, his enthusiasm had noticeably waned.
He stated in October 2024:
I’m skeptical about the value of a run-of-the-mill mannequin that costs $25,000. Yeah. It could be foolish. Unlike anything we’re accustomed to, it will be a stark contrast to our norms.
According to sources, Daniel Ho, Tesla’s package leader, Drew Baglino, Senior Vice President of Engineering, Rohan Patel, Head of Enterprise Growth and Coverage, Lars Moravy, VP of Car Engineering, and Franz von Holzhausen, Chief Designer, collectively advocated for Elon Musk to approve the production of a new $25,000 model.
According to reports, Omead Afshar, a longtime ally of Elon Musk and former Chief of Staff, has transitioned to a broad-reaching role within the Tesla government apparatus. Citing an anonymous source, it is claimed that Afshar asked aloud, “Is there a mutiny?”
Executives referenced an internal report that presented a less-than-flattering assessment of Tesla’s Robotaxi initiative. According to Patel, the report enjoys a high level of credibility.
Numerous modeling exercises consistently validated our forecast: the payback period for Full Self-Driving (FSD) and Robotaxi would be slower than expected. The project’s outcome was always going to be uncertain. The prospect of working outside the U.S. was daunting, considering the complex regulatory landscape or lack thereof.
Elon Musk overruled the assessment, gave the go-ahead for the Cybertruck, and scrapped plans for a $25,000 driveable Tesla vehicle, opting instead to focus on a more affordable model based on the Model Y platform with reduced feature sets.
The data describes the evaluation:
Analysts beneath Baglino’s supervision, head of energy practice and a key confidant of Musk’s, drove significant portions of the project forward. Calculations commenced by combining straightforward arithmetic with several key presumptions: Consumers would buy vehicles, although a substantial proportion of gross revenue would accrue from fleet operators, primarily utilizing these cars for ride-sharing purposes. As autonomous vehicle technology continues to advance, many people may abandon traditional car ownership in favor of relying on robotaxi services. Tesla would receive a minimum payment for every Robotaxi trip.
According to the evaluation, if widespread among others, it is assumed that the US automotive fleet would decline significantly, decreasing from approximately 15 million vehicles per year to around 3 million as a result of Robotaxi services boasting a usage rate five times higher than traditional taxis.
Experts adjusted the estimate by excluding individuals who wouldn’t require switching to a robotaxi for various reasons, ultimately predicting a feasible demand of approximately one million self-driving vehicles per year.
Several individuals familiar with the assessment noted:
There may be a long-overdue surge in demand for transportation services that requires passengers to rely on others’ vehicles.
Despite considering competition, Tesla estimates that robotaxis would find it challenging to absorb the approximately 600,000 vehicles sold annually within the US market.
According to estimates, Tesla expects the robotaxi fleet to generate approximately $60,000 in revenue from both sales and a significant portion of fare earnings throughout its lifespan.
Analysts predicted Robotaxi services would generate revenue of $20,000 to $25,000 per vehicle, with Tesla potentially earning up to three times that amount over the lifetime of the vehicles through minimized fares. They incorporated capital expenditures, operating costs, as well as infrastructure investments such as charging stations and parking facilities.
The internal evaluation subsequently assigned a significant decline in value to Tesla’s robotaxis, falling far short of the levels previously acknowledged by Elon Musk in public.
In 2019, Musk stated:
If we were to equip all vehicles with a Full Self-Driving (FSD) package, it’s reasonable to assume that Teslas with this feature would carry a price tag of $100,000 to $200,000 due to the significant increase in utility from approximately 12 hours per week to around 60 hours.
Tesla’s internal assessment suggests that expanding into new markets could pose significant challenges, potentially limiting the scale and profitability of its robotaxi initiative. Ultimately, the forecast suggested a strong likelihood of financial losses persisting for several years.
Electrek’s Take
One long-standing concern I’ve had about Tesla is Elon Musk’s tendency to surround himself with advisors who share his views, rather than seeking diverse perspectives and dissenting opinions.
What a unique opportunity to explore! Musk’s condescending attitude, fueled by his perceived superiority over those in the room, was exacerbated by the flattery of sycophants like Afshar.
While Elon Musk touts a promising robotaxi future for Tesla shareholders, reality may not be quite so rosily hued, provided they can successfully pioneer self-driving technology ahead of their competitors – an enormous challenge to overcome.
While CEOs often set ambitious goals, it’s another matter altogether when such promises are made at the expense of a thriving and rapidly growing company like this auto giant.
It appears that the shift in technique may have been a significant factor contributing to the departure of several key experts from Tesla last year, supporting our initial concerns.
