Tesla Model 2 to become Robotaxi instead of racing China to the bottom

After Tesla's slashing of inventory Model Y prices by up to $7,000 to close the Q1 gap between demand and production, as well as offering free FSD transfer again, now Elon Musk has resorted to his own ways to stabilize the Tesla stock price.

Seemingly in response to a report that it has given up on the $25,000 Model 2, Elon Musk tweeted that Tesla will still unveil a Robotaxi, just as he teased back in 2022.

When is the Tesla Robotaxi event?

The Tesla Model 2 was initially rumored to start production this summer, together with the ribbon-cutting ceremony for Giga Mexico. Instead, Elon Musk now says that Tesla will unveil a Robotaxi then, and even pegged August 8 as the exact date of the Robotaxi announcement.

Previously, he mentioned in an interview that Tesla has scrapped its plans for a pilot Model 2 production at the Gigafactory in Mexico, and its next generation mass market vehicle will first be built in Texas as a "revolution" in low-cost car manufacturing.

Model 2 release in flux

According to a new insider report, however, a Model 2 is not happening at all, but Tesla will use its manufacturing platform shared with the Robotaxi to unveil the supposedly autonomous vehicle instead.

Tesla reportedly issued memos that "suppliers should halt all further activities related to H422/NV91" Model 2 project because "Elon’s directive is to go all in on robotaxi." In addition, project managers apparently thanked "everyone for all your hard work and dedication to pushing boundaries and executing the best design possible given the aggressive constraints we had to work within."

That memo still gives a notion that the Model 2 project could be unfrozen if market conditions change, though. "We would not want all our hard work to go to waste, so it’s important that we tie things off and document things properly," it continues, and perhaps this is why Elon Musk has dismissed the project scrapping report as inaccurate.

Robotaxi release

An announcement is not a launch, of course, so a Robotaxi release might be quite a bit away still, but the unveiling will at least show how Tesla's Master Plan 3 strategy is developing.

There, Tesla envisioned a compact car platform that will sell in the many millions and even pegged its average LFP battery capacity at 53 kWh. There have been various rumors since then, down to the 250-mile range, the design resembling a smaller Model Y, and the optional HW5 suite.

China already has Model 2 competitors

Apparently, Tesla is facing an onslaught of cheap Chinese electric cars that will be direct competitors to the Model 2. Manufacturers like BYD are sitting on significant overcapacity and started a price war with sub-$10,000 models like the Seagull. A Model 2 would thus be a race to the bottom that won't allow Tesla to keep its margins, says the report, so it will be looking to differentiate in the mass vehicle market with added value like self-driving instead.

Moreover, Tesla may see less need for a smaller $25,000 car with limited specs and features in a market that is becoming increasingly challenging for EVs. Now that used Model 3s go for under $20,000 and a new inventory Model Y can be had for under $34,000 with the federal tax credit, affordability may not be as pressing as in 2022 when the Model 2 design and production plans were being finalized.

According to Elon Musk's biography, a Robotaxi was actually his plan all along, and he only begrudgingly agreed to a more conventional Model 2 launch when he saw its futuristic design. While he scoffed at the Model 2 scrapping report, Musk pegged the Robotaxi unveil soon after, and Tesla's share price is now one of the movers in after market hours.

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