Elon Musk vows to take on petrol rivals with Tesla’s cheapest car, shares fall

Tesla plans to sell a cheaper vehicle that will dramatically increase the number of buyers able to afford an electric car, the company said on Wednesday night (Thursday night NZ time).

The billionaire entrepreneur and other Tesla executives said they planned to cut the cost of making new cars by half, allowing it to slash the price of its “next-generation vehicle”.

The car would be significantly cheaper than the $US43,000 Model 3 (which sells from $68,900 in NZ) and move Tesla from a premium manufacturer to a truly mass-market producer.

However, the highly-anticipated investor day, at which Musk said he would outline his “master plan” for Tesla, was light on detail about the new car and shares in the company fell in after-hours trading. The EV maker’s stock was down 6.4 per cent to US$1.89.88 in late trading, giving up some of its recent gains.

Musk also hinted that Tesla could manufacture heat pumps for people’s houses, in a potential boost to the appliances amid sluggish installations.

Tesla did not give details of the new vehicle, which Musk has previously suggested could cost around US$25,000, disappointing fans. Instead, it outlined a series of ways it could reduce costs.

“As we improve affordability the number of customers who have access to our product dramatically increases,” Tesla’s chief financial officer Zach Kirkhorn said.

“This is a product that we expect to have substantially lower cost per mile than the highest selling products in the world.”

Tesla is seeing growing competition from established car companies, which are promising to provide more choice than Tesla by electrifying a wide range of models, and by Chinese upstarts, which are seeking to undercut the American company on price.

Developing a more widely-affordable car is likely to put pressure on the company to dramatically increase production. Tesla made 1.3 million cars last year despite being valued at US$632 billion - more than three times Japanese giant Toyota, which made 10.5m vehicles.

Tesla aims to produce 20 million vehicles per year by 2030.

Achieving that and other goals will require up to around US$175b in investment, of which Tesla already has spent about US$28b, according to the Investor Day presentation, which offered few other financial or logistical details.

Musk said his “master plan” for Tesla included moving the world to one of energy “abundance” in which solar and wind energy and battery storage lead to cheap electricity. He suggested the company could manufacture its own heat pumps as part of this.

“At some point we might make a heat pump for the home,” Musk told investors.

Manufacturing the pumps would push Tesla further into people’s homes, moving it away from primarily an electric vehicle manufacturer to a wider renewable energy company. It already sells battery storage systems and solar panels to households.

Musk’s leadership of the social network Twitter, which he paid US$44b for last year, has raised concerns that he has become distracted from Tesla.

The carmaker’s shares fell by 65 per cent last year but have rallied in recent weeks, and Musk has regained his status as the world’s richest man.