Tesla, Inc. (NASDAQ: TSLA) shares surged in pre-market trading Monday following a news report suggesting that the carmaker is close to unveiling its plans to manufacture an economical version of its electrified vehicles at a facility near Berlin.
According to Reuters, Tesla, Inc. (NASDAQ: TSLA), which has been actively working on the technology needed to manufacture low-cost EVs, is planning to leverage its existing Berlin gigafactory to roll out a revolutionary electric car with a price tag as low as €25,000 ($26,872). This price point is roughly half the average cost for electric vehicles in the region, i.e., around €65,000, and notably below the starting price of the cheapest Model 3 at €43,000.
Tesla CEO Elon Musk dropped hints about this move during his recent visit to the Gruenheide factory, located just 15 miles southeast of Berlin, as reported by Reuters.
This strategic move reflects Tesla’s relentless pursuit of dominating the rapidly evolving and fiercely competitive global EV arena. Musk, earlier this year, issued a stark warning to investors, expressing his unwavering commitment to expanding Tesla’s market presence even if it meant sacrificing short-term profits.
Since then, Tesla’s profit margins have notably contracted, shrinking to 16.1% for the third quarter, a considerable drop from the 18.7% recorded in the first quarter and last year’s second-quarter tally of 23.2%.
Gross margins have mirrored this trend, falling to 17.9% from 25.1% during the same period last year and the 18.2% reported in the second quarter. Wall Street estimates have ranged between 17.8% and 18.2%.
Musk has also expressed concern about high interest rates in key markets, particularly in the United States, hindering potential sales. Introducing a more affordable car could neutralize the impact of higher interest rates while expanding Tesla’s market share.
However, Tesla, Inc. (NASDAQ: TSLA)remains susceptible to cost pressures, especially concerning labor, which may pose obstacles to the ramping up of production in the forthcoming years.
On a related note, Musk granted Berlin workers a 4% pay raise last Friday, which, when combined with bonuses, amounts to an 18% increase over the past year and a half. However, labor union leaders in Germany and the broader European Union continue to exert pressure on Tesla. In this context, it is worth noting that Tesla’s pay packages still fall notably short of those offered by competitors like Ford Motor Company (NYSE: F) and General Motors Company (NYSE: GM), both of which recently struck substantial pay deals with the United Autoworkers Union.
UAW president Shawn Fain has even hinted at the possibility of organizing Tesla workers in the United States, despite Musk’s well-known opposition to unions, stating that it is “doable” and expressing the hope that they can “realize the full power of membership” and secure an even more favorable contract.
Tesla stock is trading at $224.40 as of writing, marking a 2.02% increase over the last trading session.