Strangely, Tesla (TSLA) could dominate and save the American auto industry with three clever new products. Those products are a $25,000 electric car, a new wall charger, and auto insurance.
None of these products is glamorous, but I think they could be game changers. Thus, Tesla could change the auto business behind recognition and make a lot of money.
Tesla has plans for a $25,000 economy car built with the technology they use in the Cybertruck, Axios claims. To explain, Musk retainers told biographer Walter Isaacson that Tesla’s Texas Gigafactory could produce economy cars and robotaxis on the Cybertruck production lines.
Can they produce a $25,000 Tesla (TSLA)?
This follows Tesla’s classic business strategy of using expensive luxury models as test platforms for new technology. Then adapting that technology for cheaper mass production models.
For example, Tesla first produced the Roadster sports car, then adapted the Roadster technology to the Model S luxury sedan. They adapted the Model S technology to the Model X sport utility vehicle (SUV). Finally, they adapted the X and S technology to the Model 3 mid-priced sedan and the cheaper Model Y SUV.
The Model 3 and Model Y are popular, Tesla built 460,211 Model 3 and Y SUVs in the second quarter of 2023. They delivered 446,915 Model 3s and Ys in the second quarter of 2023.
Notably, the Model Y was America’s fourth bestselling vehicle in the first half of 2023. They sold 190,500 Model Ys in the US in the first half of 2023, Car and Driver estimates.
Is there a Market for a $25,000 Tesla (TSLA)?
The $25,000 Tesla is an enormous risk. To explain, could be there could no North American market for a $25,000 Tesla.
Americans prefer trucks and SUVs to basic cars. For example, they sold 150,742 new units of America’s best-selling car, the Toyota Camry. in the first six months of 2023, Car and Driver estimates. In contrast, Ford sold 382,893 units of America’s favorite vehicle, the F-Series pickup, in the first six months of 2023. Plus, Tesla sold 190,500 Model Ys and 121,500 Model 3s in the US in the first quarter of 2023.
Notably, the Toyota Camry’s 2024 Kelley Blue Book value was $27,515. Yet a lower price doesn’t make the Camry popular. It was the seventh best-selling US vehicle in the first six months of 2023. Behind three pickup trucks and three SUVs.
The average US new auto price was $48,808 in June 2023, Kelley Blue Book estimate. Similarly, the average non-luxury US vehicle price was $45,291 in June 2023. Thus, most Americans will pay over $40,000 for a ride.
Hence, price is not the top consideration for American auto buyers. One reason for this is that Americans finance over 85% of vehicle purchases. Thus, the North America car buyer looks at the monthly payment, not the sticker price.
Will Anybody Buy the $25,000 Tesla?
Another problem is America’s used car market. The typical car buyer asks: “Why should I drive a boring Camry? When I can buy a used F-150, Model Y, or Mercedes for a similar price?” Consequently, Americans bought 13.6 million new vehicles and 38.6 million used vehicles in 2022, Statista estimates.
I think there are only two ways a $25,000 Tesla could reach a mass market. First, Elon Musk calls the $25,000 vehicle a “global car,” Isaacson claims. Hence, Tesla could sell it in markets where ordinary people cannot finance cars. For example, India or Africa.
Second, I think the $25,000 Tesla could be popular if it is an SUV or a pickup. Pickup trucks and SUVs are America’s most popular vehicles. Notably, Isaacson claims they could build the $25,000 Tesla on the Cybertruck body. Hence, the $25,000 vehicle could be a cheap pickup to compete with the F-series.
Another potential market for a $25,000 Tesla is fleet sales. For example, as taxis, rental vehicles, or for corporate and government motor pools. A Tesla police cruiser, for instance. Notably, Musk promises a $25,000 self-driving car, a “robotaxi.”
Moreover, the $25,000 Tesla will need to offer all the features Americans want in cars. For example, air conditioning, all-wheel drive, more power and speed, Wi-Fi, and more space in the vehicle.
Model Y sales prove Tesla can sell SUVs. A $25,000 SUV could make Tesla (TSLA) America’s largest automaker.
Can Tesla Revolutionize Charging with a Universal Wall Charger?
Tesla (TSLA) could profit from competitors’ electric vehicles (EVs) with a new charging device, the Magic Dock.
The Magic Dock is an adapter that drivers to charge non-Teslas at Tesla Supercharger filling stations. To explain, there are two charging standards for EVs in North America. Tesla’s North American Charging Standard and the Combined Charging Standard (CCS) most EV manufacturers use.
Consequently, you cannot charge a CCS EV, such as a Ford-150 Lightning, at Tesla Supercharger or Tesla Wall Connector. However, Magic Dock lets you charge CCS vehicles at Superchargers.
Moreover, Tesla Motors (TSLA) plans to start selling a Universal Wall Connector that can charge CCS vehicles with a Magic Dock in October 2023. I think there could be an enormous demand for Universal Wall Connectors.
For example, Universal Wall Charger vending machines for EV drivers at filling stations, truck stops, supermarkets, Big Box stores, fast-food joints, movie theaters, and other businesses. Other places for the Universal Wall Charger include rest areas, apartment buildings, homes, workplaces, government buildings, and hospitals.
There are more EVs on the road. For example, Ford sold 4,466 F-150 Lightnings in the second quarter of 2023, a 118.7% increase from 2022. Each of those F-150 Lightning owners is a potential Supercharger Customer and Universal Wall Connector buyer.
Can Tesla (TSLA) Disrupt Car Insurance?
The third product that could help Tesla (TSLA) dominate the vehicle market is car insurance.
MarketWatch theorizes that Tesla could disrupt the auto insurance market. Elon Musk launched Tesla Insurance because of high rates. Insurers charged Tesla owners more because Tesla repairs can be more expensive than traditional vehicles.
Tesla has been offering its own car insurance since 2019. Tesla claims that it bases insurance rates on policyholders’ real-time driving behavior. They claim Tesla’s Safety Score tracks driving behavior, allowing the company to offer discounts to safer drivers.
Theoretically, this could cut some drivers’ rates because many insurers base auto insurance prices on metrics that have nothing to do with driving. For example, credit scores.
Can Tesla (TSLA) cut car Insurance Rates?
Conversely, Tesla insurance was only available in 12 states in August 2023, Marketwatch reports. Moreover, NerdWallet claims Tesla insurance for a Model 3 was 45% higher than the median national cost of car insurance in June 2023.
The problem with Tesla and MarketWatch’s claims is that the biggest determinant of American car insurance rates is state law. For example, 18 states require no-fault auto insurance.
No-fault insurance covers medical bills after an accident regardless of who is at fault. Hence, your insurance company cannot sue a terrible driver who causes an accident for the medical costs. Notably, eight of the states on Experian’s list of states with the most expensive car insurance require no-fault.
Tellingly, Tesla offers insurance in just three no-fault states, Maryland, Minnesota, and Oregon. Moreover, Tesla Insurance is not available in the four US States with the most expensive car insurance, Delaware, Louisiana, New York, and Georgia.
Thus, I am skeptical of claims Tesla can cut car insurance rates. I suspect state law will keep Tesla from offering cheaper car insurance. Still, Tesla could disrupt the auto industry if it bundles insurance with cars. However, that could violate anti-trust laws and attract the attention of the Federal Trade Commission (FTC).
How Much Money Tesla (TSLA) make?
However, many people will buy claims Tesla (TSLA) can make money from these initiatives because of its track record. For example, Tesla’s quarterly revenues grew from $16.934 billion on 30 June 2022 to $24.297 on 30 June 2023.
Hence, Tesla’s quarterly revenues grew by $7.363 billion in a year. Notably, Tesla reported a 47.20% revenue growth rate for the quarter ending on 30 June 2023. Furthermore, Tesla reported five quarters of double-digit revenue growth between 30 June 2022 to 30 June 2023.
In contrast, Tesla’s quarterly gross profit grew from $4.234 billion on 30 June 2022 to $4.53 billion on 30 June 2023. Conversely, the quarterly operating income fell from $2.464 billion on 30 June 2022 to $2.399 billion on 30 June 2023. Yet Tesla’s quarterly operating cash flow grew from $2.351 billion on 30 June 2022 to $3.065 billion on 30 June 2023.
Tesla Generates Enormous Amounts of Cash
Tesla (TSLA) can generate enormous amounts of cash. Tesla reported a quarterly ending cash flow of $16.77 billion on 31 March 2023. However, the quarterly ending cash flow fell to -$891 million on 30 June 2023.
Consequently, Tesla had $23.075 billion in cash and short-term investments on 30 June 2023. The cash and short-term investments grew from $18.915 billion on 30 June 2022. Impressively, Tesla’s total debt fell from $4.843 billion on 30 June 2022 to $2.88 billion on 30 June 2023.
Tesla is adding enormous amounts of value. For example, Tesla’s Total Assets grew from $68.513 billion on 30 June 2022 to $90.591 billion on 30 June 2023.
I think Mr. Market fairly priced Tesla at $274.94 on 15 September 2023 because of the growth. Tesla’s share price fell from $292.13 on 13 September 2022.
Tesla is now a major player in the auto market that is poised for enormous growth. For example, the Model Y was the world’s best-selling car in the first quarter of 2023. Hence, Tesla can disrupt the auto industry.
Furthermore, I think Tesla (TLSA) is the US automaker best poised to resist the onslaught of cheap high-quality Chinese vehicles some analysts expect. Chinese companies produce around one third of the world’s vehicles (around 27.02 million units in 2022).
To explain, I think Tesla is the only American company that can match Chinese automakers’ design and technology capabilities. However, Chinese companies could offer lower costs.