Tesla Model 2, What The World Wants — Help Us Design It & Cut Costs!

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I thought about titling this article “Tesla Model 2, What The World Needs,” but I thought that would sound too authoritarian, so instead, I’ll focus on my perception of what the world wants out of a less expensive Tesla.

I’d like to thank my colleague, Benjamin Schulz  for inspiring this article. Usually I try to speculate on what Tesla is going to do with its next vehicles. My goal of this article, though, is to generate discussion of the “Model 2” (as some of us are calling it) and influence Tesla at a time early enough in the design process that all decisions are still changeable.

Many people say that Tesla has enough on its plate with 4 announced vehicles yet to ship (Semi, new Roadster, Model Y, and Cybertruck), in addition to the things it is doing in the energy division. I disagree for two reasons.

1. Tesla is a larger company than it was before and can take on more challenges as it learns to delegate responsibility and not route every decision through Elon Musk (it is arguable if it is learning this, but let us assume it is).
2. I don’t know the job descriptions, but there are people who work on early development of unannounced vehicles and people who take vehicles that are announced and get them ready for production. I would say that the Model Y and the Semi are both basically ready for production (they both still have many challenges as they ramp production, of course). I would say the new Roadster and the Cybertruck aren’t ready for production yet. But those people who work on vehicles that are unannounced have to do something, and the Model 2 is both the product that could do a lot for Tesla’s mission (“to accelerate the world’s transition to sustainable energy”) and could be Tesla’s most popular product yet.

Elon has said that he wouldn’t make a car smaller than the Model 3, since the cost per mile once he gets full self driving working and approved is so low there’s no need for a cheaper vehicle. On the other hand, getting software working is my day job, and it is hard. Getting governments to approve driverless cars around the world is also hard. Because of this, it makes sense for Tesla to prepare a cheaper vehicle to support the mission in the event that the software development hits some snags or a few fatal accidents involving driverless cars (whether Teslas or cars from somebody else) cause governments to overreact and require driverless cars (which will be safer than human-driven cars but still imperfect) to have such a high level of safety that it delays their deployment by many years, causing millions of people to die unnecessarily.

Without getting us too far off topic, this is similar to the discussion people have regarding the FDA and its approval of drugs. Some claim many people unnecessarily die due to flaws in the drug approval process. Right-to-try laws get around this problem since what possible harm is there in letting a terminally ill person try an unapproved drug? Unfortunately, when a self-driving car takes a life, it will be very bad publicity for the technology even if the same model of car has saved thousands of  lives. For this reason, I am a bit pessimistic on getting approval to use robotaxis, even if they work well 99.99% of the time.

In this interview with Marques Brownlee in August 2018, he mentions at 4:47 that he thinks Tesla can make a car for $25,000 in 3 years if they work really hard and increase scale. So, at the time of that interview, he thought 2021, but in my article earlier this year, I put it out to 2022. He also talks about doing two products at a time instead of one product at a time. Six months later, he brought it up again in response to a question from Olivia Rudgard, at 16:12 in this press call on February 28th, the day that Tesla released the $35,000 Model 3 (if you want to hear my question to Elon, go to 29:30 in the webcast). Elon responded, “Will there be future models that cost less? Yes, but there won’t be soon — there would be at least two to three years, probably closer to three years.” That would be late 2021 or early 2022.

So, that is plenty of evidence that they are working on something. Let’s see if we can help Elon and Tesla flesh out the requirements. The obvious requirement is to make it affordable to more people. We will speculate on both how to reduce manufacturing costs and how to reduce perceived costs so as to make it available to people who don’t think they can afford a $25,000 car. Since I think the starting point is the $43,700 Model Y (with built-in Autopilot), simple math says we are looking for a 43% reduction in costs to give the Model 2 a similar margin to the Model Y. That is less aggressive than the Model 3 approximately halving the cost of the Model S from $70,000 to $35,000.

Easy Requirements

Let’s start with the things that I think aren’t very controversial.

1. The car should be a small crossover (15% to 25% smaller than a Model Y), since that class car can still seat 4 to 5 people. A small but high-roof car lets the car be shorter and use less material, yet still fit an average family.

It is important that the car be slightly narrower in addition to being shorter. In parts of the world, the Model Y is considered a large car. I don’t think Tesla will make a car tiny like a Smart Fortwo, but it could be a few inches shorter and narrower without impacting safety significantly. In the back, it will still fit 3 slim people, but not 3 average Western adults. That is okay. Over half the people in the world are slim.

Benjamin Shulz suggested a length of 175″ (445 cm) and a width of 72″ (183 cm), compared to the Model 3 length of 185″ (470 cm) by 73″ (185 cm), the Toyota RAV4 length of 181″ (460 cm) by 73″ (185 cm), the Chevy Bolt’s 164″ (417 cm) by 70″ (178 cm), the BMW X1’s 175″ (445 cm) by 72″ (183 cm), the Honda HR-V’s 170″ (432 cm) by 70″ (178 cm), the VW ID.3’s 168″ (427 cm) by 71″ (180 cm), and the  Model S’s 196″ (498 cm) by 77″ (196 cm). So, 175″ (445 cm) would be 10″ (25 cm) less than the Model 3’s length, which is 1 inch (2.5 cm) more than the number of inches removed from the S to make the 3 and in the middle of some of its gas and EV competition.

For height, I would make it as tall as I could without making it look too dorky. You want the space and you sacrifice a little aerodynamics, but you are trying to get as much space inside as you can and adding height is a way you can do that. You don’t have to worry about it being top heavy, since the heavy low battery will keep the rollover risk low, even if the car is quite tall.

2. Lower-range option. I think a standard range of 200 miles (322 km) would be fine. By 2022, V3 superchargers should be deployed in a lot of places. This means it is likely you can just stop for 15 minutes every 2 hours to add 150 miles (241 km) of range. That should be acceptable to a more price-sensitive consumer. Assuming the base 50 kWh pack costs about $7,000 ($140 kWh at the pack level) in the Model Y (I’m not sure it is exactly 50 kWh) and the vehicle is 20% smaller, and costs go down 10% a year and efficiency up 5% a year, in 2 years, Tesla should be able to create a 40 kWh pack for about $4,000. That’s another 7% savings.

3. Manufacturing innovation. Tesla needs other 16% or so in manufacturing innovation to meet the goal. That is about 8%, or a little over $3,000, a year. I’m confident that Tesla can manage that level of cost reduction.

4. Zero emissions.

5. Great efficiency. Low maintenance required. Product should have a quarter of the fuel costs of gas or diesel cars.

6. Over-the-air updates, like all recent Tesla vehicles have.

7. Full Self Driving option. Tesla could cut this out to save money, but I think that would be short sighted. If Tesla can leave this in every car and meet its goals, that’s a big win.

8. Million-mile battery and motors. Tesla has already said the Model 3 motors are both designed and tested to last a million miles. I wouldn’t expect anything less in a higher-volume car. By 2022, the million-mile (1.61M km) battery might be the only battery available. If it is cheaper to use a half-million-mile (804,672 km) battery, that is fine too.

9. Class-leading safety. It will be tough to make a smaller vehicle as safe as a larger vehicle, but with active safety features taking an ever more important role, I’m confident that Tesla can make the Model 2 very safe, even it it might be slightly less safe than a Cybertruck or Model 3.

More Aggressive Ideas

1. Should they use a new material and not follow either the Model Y or the Cybertruck? Tesla has never been afraid to make bold choices (with the possible exception of the Model Y). Should they look into super wood, as I suggested in this article?

2. Should it be based on a the Model Y or a smaller Cybertruck? Although the Model Y will have a competitive cost of ownership to the top selling Toyota RAV4, its starting price of $43,700 is a lot higher than the RAV4’s starting price of $25,950. Not everyone understands that the reduced fuel costs, maintenance, and deprecation expected with the Model Y make it a better deal. Some do understand it but can’t qualify for the larger loan required to buy the Model Y (since lenders haven’t yet adjusted the loan requirements to allow people buying Tesla vehicles to have lower income since they won’t have high fuel, maintenance, and depreciation costs).

The Cybertruck hopes to have much lower capital and manufacturing costs, so using a folded steel body is very appealing. I’m sure Tesla will model both and might have the resources to make both in volume, since I think both would be appealing vehicles.

3. Fold all costs into one payment. If you take a Tesla Lease and add Tesla Insurance, then all you have to add is an extended maintenance agreement and you have most costs covered. You could also roll charging into this for people without home chargers, but it really doesn’t make sense to do that for people with homes. If you can get all costs down to an aggressive $299 a month, it would make the car affordable to vastly more people. As Tesla will have a longer safety record, insurance should be based more on the car and less on the driver (as the car does more of the driving). Tesla should feel confident that depreciation, repairs and maintenance costs are minimal, so that should lower costs also.

Reader Ideas

I’d like to challenge our readers to comment below with the ideas they have to make the Model 2 affordable to more people. Maybe some of our reader ideas will be a duplicate of what Tesla has already considered, but maybe we will think of things the company hasn’t yet considered!

If you decide to order a Tesla, order soon, since they may sell out soon for those wanting to get delivery this year and still get the $1,875 US federal tax credit. Use my Tesla referral link to get 1,000 miles (1,609 km) of free Supercharging on a Tesla Model S, Model X, or Model 3 (you can’t use it on the Model Y yet). Now good for $100 off on solar, too! Here’s the link: https://ts.la/paul92237