Tesla India factory delayed? Musk's shift on low-cost EVs may put India, Mexico plants at risk

Tesla may be forced to delay the opening of its factory in India, following one of its worst quarters in years. As it explores making more budget-friendly options to attract new customers, Tesla announced on Tuesday that it will be using its existing factories to produce new and more affordable vehicles.

This renders plans for new factories in Mexico and India in an uncertain state at least for the foreseeable future. The EV manufacturer aims to increase production by 50 per cent compared from 2023 to nearly 3 million vehicles before considering investments in new manufacturing lines.

While this approach may result in less cost reduction than previously anticipated, Tesla emphasized its ability to prudently expand vehicle volumes in a more capital-efficient manner amid uncertain market conditions.

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Investors welcomed the decision which led to a 12 per cent surge in Tesla shares in after-hours trading, despite the company’s quarterly results falling short of financial targets. All things considered, Tesla’s stock has fallen by 40 per cent this year.

Elliot Johnson, chief investment officer at Evolve ETFs, hailed the move as a positive step, noting Tesla’s recognition of market challenges and its focus on introducing a more affordable vehicle from its existing product line.

In April, Reuters reported that Tesla had scrapped plans to launch its affordable Model 2 vehicle, which was expected to be produced in Texas, Mexico, and another country. CEO Elon Musk responded to the Reuters report on X, dismissing it as a “lie.”

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On Tuesday, Tesla discussed new models that appeared to differ from the Model 2, without directly addressing the Reuters report.

In January, Musk announced Tesla’s plans to start making a cheaper new model by the second half of 2025, highlighting its revolutionary manufacturing technology and potential to drive Tesla’s future growth. Despite the setback with the Model 2, Tesla remains committed to introducing innovative vehicles that could shape the next phase of its expansion.

Lars Moravy, Tesla’s head of engineering, emphasized on Tuesday the inherent risks associated with new manufacturing processes and production lines. He highlighted a “major shift” in Tesla’s approach, focusing on utilizing existing facilities to manufacture low-cost vehicles quickly and efficiently, at least for the time being.

Meanwhile, CEO Elon Musk’s anticipated meeting with India’s Prime Minister Narendra Modi was postponed, with Musk citing “very heavy Tesla obligations.” He expressed intentions to reschedule the visit later this year, which was expected to include announcements of major investments in an auto factory aimed at producing a small, affordable model.

Regarding plans in Mexico, Musk previously stated Tesla’s commitment to building a factory but emphasized that the timing would depend on economic factors such as interest rates affecting vehicle affordability. Despite plans for initial construction phases last year, no further updates have been provided.

Analysts noted the challenges Tesla faces in expanding capacity amid anticipated slowing sales following years of double-digit growth rates. Tesla reiterated on Tuesday that its vehicle volume growth rate for this year may be notably lower than in 2023. Musk emphasized during a conference call that sales would still increase from last year, despite potential challenges.
(With inputs from agencies)