Tesla Rolled Off its Long-Awaited Cybertruck, But Cheap EVs are the Big Bet

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Tesla Cybertruck

During a highly anticipated event on Thursday, Tesla began deliveries of its futuristic stainless steel pick-up truck, the Cybertruck. During the event, CEO Elon Musk hyped up the vehicle, saying it is the firm's "best product" and will be "the most unique thing on the road". He went on to proclaim that "finally the future will look like the future", cheered by the excited attendants [1]. The car will start at $49,890 in the US for the rear wheel-drive version (including federal tax credits), but that won't be available until 2025. The most powerful version, dubbed the Cyberbeast, will be deliverable next year at a price of more than $96,000. It will have 320 miles of range, 845 horsepower and 11,000 lbs of towing capacity. [2]

The Cybertruck was first unveiled four years ago and the prices revealed yesterday are significantly higher that the initial ones. Tesla Motors Inc had delayed the rollout multiple times, as production of this unique and unconventional design proved difficult. Alluding to the build complexities during October's earnings call, Mr Musk said that "we dug our own grave" and volume production will require "immense work". He expects output of around 250,000 units per/year eventually, but not for 2024. He had also noted that 12-18 moths will be needed for the Cybertruck to become a significant positive cash flow contributor. [3]

He had touted "off the charts" demand for the new vehicle and over one million reservations, but the rollout comes at a challenging period for Tesla and the broader EV market. High interest rates that make funding more expensive amidst still elevated inflation, economic uncertainty, range anxiety and price premium are among key factors that have dented the appeal of electric vehicles.

Tesla's deliveries dropped 6.6% q/q in the third quarter, the first slide in over a year, while vehicle inventory has ballooned. It had 16 days of supply in Q3, doubling from a year ago and nearly tripling compared to the same quarter in 2021. Tesla Motors Inc has tried to mitigate soft demand, with a series of price cuts, over the past several months [4]

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However, this pricing strategy has caused a substantial dip in its profitability. Net income fell well below $2 billion in the third quarter and the lowest in two years, while operating margin was further squeezed to 7.6%. Ramping up production of a challenging vehicle like the Cybertuck, could stress its balance sheet.

Roughly two years behind schedule, Tesla's new vehicle enters into a hot electric pickup truck market, so it could be in for stiff competition. Rivian Automotive beat everyone to the punch, with the impressive R1T, which is on the market for two years. After a difficult period, the US start-up appears to be turning the corner and gears up for an expansion of its lineup. Auto giant Ford Motor Company has thrown its hat in the arena with the more affordable and utilitarian F-150 Lightning, the electric version of America's beloved truck. Both those vehicles have received critical praise and named Truck of The Year for 2022 and 2023 respectively from MotorTrend. [5], [6]

Although sales of the Cybertruck are expected to be low compared to the firm's most popular models, the new vehicle could renew the excitement around Tesla Motors Inc and will refresh its aging lineup, since this is the first new passenger car in nearly four years. A few months back, the EV leader launched an updated Model 3, which had been on the streets for six years. The refreshed version is not yet sold in the US though, since execs prioritized China and Europe, the world's largest EV markets.

The recent softening in the demand for electric cars, against an adverse external environment, has placed the issue of cheap EVs front and center. High-volume, low-cost EVs are needed for mass adoption and some automakers like German behemoth Volkswagen have already announced models like that. A cheap car has been Elon Musk's goal from his original 2006 Master Plan [7] and it looks like he may be finally coming closer to delivering on that pledge. Although there are no concrete plans, executives have outlined a next generation platform that would allow the production of an affordable EV. During October's earnings call, Mr Musk essentially confirmed that Tesla is working towards a "more conventional" and "utilitarian" small and cheap car, without providing timeframe. [3]

The long-awaited Cybertruck is a welcome addition to Tesla's lineup that reinforces its reputation for pushing the envelope with advanced and unique products, but remains to be seen how consumers will react. It is an important model for the company, but even though not-niche, it's not aimed for mass production. It could face strong competition in an expanding market and comes at a period when Tesla faces weakening demand and narrowing profits, so its success (or not) could be crucial. However, focus is shifting towards affordable electric cars that can accelerate adoption.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 01 Dec 2023 https://twitter.com/i/broadcasts/1ZkKzjaBdmLKv

2

Retrieved 01 Dec 2023 https://www.tesla.com/cybertruck/design#payment

3

Retrieved 01 Dec 2023 https://www.youtube.com/watch

4

Retrieved 01 Dec 2023 https://digitalassets.tesla.com/tesla-contents/image/upload/IR/TSLA-Q3-2023-Update-3.pdf

5

Retrieved 01 Dec 2023 https://www.motortrend.com/news/rivian-r1t-2022-truck-of-the-year/

6

Retrieved 01 Dec 2023 https://www.motortrend.com/news/ford-f-150-lightning-2023-truck-of-the-year/

7

Retrieved 20 Feb 2024 https://www.tesla.com/blog/secret-tesla-motors-master-plan-just-between-you-and-me

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