Tesla Abandons Cheap Car–Musk Denies It

Tesla has dropped the plan to make a small, inexpensive model. The news is surprising. Among the reasons people do not buy EVs is that they cost too much. According to Reuters, Tesla now believes that China can undercut its production costs, so it cannot compete in the low end of the market.

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Reuters reports that “the decision represents an abandonment of a longstanding goal that Tesla Elon Musk has often characterized as its primary mission: affordable electric cars for the masses.”

Where does this leave Tesla and the colossal legacy car makers that have moved into the EV markets? Some have retreated temporarily because the demand for EVs has slowed while the demand for hybrids has risen. They may need to compete for the high end of the market alone. In the meantime, several small car companies which make premium EVs will suffer. Lucid and Rivian, already fighting for their lives, belong on this list.

Tesla cannot know when cheap China EVs will be sold in large numbers outside the Chinese market. Tariffs have kept them out of the EU and US. However, it is unlikely those tariffs will hold if consumer demand spikes.

A final issue for the car industry is that China also makes high-end EVs. Where does that leave the world’s car companies to go?