Tesla, cost obsession. And analysts downgrade blitz in China

Almost all other car manufacturers selling electric vehicles in the US have joined Tesla's Supercharger network, the most developed in the country: according to the Department of Energy, Tesla in the US has 2,261 fast-charging stations with 25,491 outlets.

The news came as a bolt out of the blue, after a decision filtered through in mid-April to cut 10 per cent of the workforce, some 14,000 people, following the deluding first-quarter results. At the same time, two key figures had left the company: senior vice president Drew Baglino, who headed the engineering and technology development of batteries, motors, and energy products, and Tesla's vice president for public policy and business development, Rohan Patel. Baglino, an 18-year company veteran, had shared the stage with Elon Musk at several events, including Tesla's Investor Day just over a year ago. In recent days there have been rumours of further cuts of hundreds of posts.

More savings, another sign that costs have become an obsession. Tesla has scrapped an ambitious investment plan in gigacasting, its state-of-the-art manufacturing process, Reuters revealed. Tesla has been a leader in this technique, which uses huge thousand-ton presses to press-cast large sections of the car's underbody. In a classic vehicle, the underbody may consist of hundreds of individual parts. Last year, in the development of a new platform for small vehicles, Tesla had aimed to make the underbody in one piece. The long-term goal was to radically simplify production and reduce costs.

In the end, however, Tesla opted for the tried-and-tested method, used for models already on the road, including the Cybertruck, of casting the vehicle shells in three pieces: two front and rear sections and a central section made of aluminium and steel frames for the batteries. Not least because this solution limits possible repair costs. Yet the American manufacturer has not completely abandoned the idea of a platform for small vehicles planned for Model 2, the $25-30,000 Tesla that could be ready in the second half of 2025. In an effort to contain costs, the Austin-based company will adapt the three-part gigacasting for upcoming products, including the announced robotaxi, which Musk is expected to unveil on 8 August.

But clearly these are stormy weeks for the world's most capitalised car company (despite its sharp fall in recent months). Days when the CEO can reverse decisions, such as that of postponing production of the Model 2, the $25-30,000 Tesla, which should be a reality by 2025. Days when Musk can rush to Beijing to ensure that the assisted driving software, Full Self-Driving, is accepted in the Dragon market, works as well as possible thanks to Baidu's maps and makes his Model 3 and Model Y more competitive against increasingly determined rivals up to the challenge.

Musk's decision to sack the head of the Supercharger network, Rebecca Tinucci, and most or all of the staff who operated and maintained the system, according to two former employees and several LinkedIn posts, has left carmaker officials and Tesla suppliers uncertain about the future.

Musk went on to correct his stance on X, stating that the carmaker still plans to expand the Supercharger network, 'only at a slower pace for new locations and focusing more on 100 per cent uptime and expansion of existing locations'.

Andres Pinter, co-CEO of Bullet EV Charging Solutions, a provider of the network, said: 'As contractors of the Supercharger network, my team woke up this morning with a strong kick in the trousers.

In the meantime, the share price is back to losing ground conspicuously. In Tuesday's session, it fell 5.55% (-26% in 2024) and lost more than 2% in premarket trading as the Chinese blitz did not convince analysts, after Monday's +16%, the highest rise in three years. According to the Evercore team led by Chris McNally, what Musk got in Beijing, a preliminary green light, was "only a small" advantage for the company, as regulatory approval is difficult to obtain in China. Evercore estimates in its report that Tesla will generate about 3 cents in earnings per share for every 10 per cent adoption of Full Self-Driving (Fsd). "Ultimately, little has changed," McNally wrote.

Although Tesla's Fsd suite of functions requires constant driver supervision and does not make its cars autonomous (it is a Level 2 on the Society of Automotive Engineers, Sae, 0 to 5 scale) the manufacturer charges $99 per month in the US (price halved from 12 April, it was $199).

According to McNally, Tesla could only charge $50 per month for Fsd in China to be competitive with the offerings of XPeng, Nio, and Zeekr (Geely Group brands). Bernstein analysts have reported similar concerns, noting that Huawei, XPeng, Nio and Li Auto offer similar functionality to Tesla, 'and the functionality is often offered for free'.

"We do not believe the Fsd is likely to boost auto sales in China and we see limited incremental revenues in the short term," said Toni Sacconaghi, of Bernstein, in a report."

Analysts at Bank of America, led byJohn Murphy, spoke of the wide range of outcomes that could result from Tesla's Fsd offering in China, stating in a note to clients that earnings from the product could exceed $2 billion in 2030 but also be zero.