By Claudia Assis
Tesla needs ‘actual new’ models to generate excitement again
Tesla Inc. Chief Executive Elon Musk “let the cat out of the bag,” as he put it, earlier this week, saying that one of the long-awaited cheaper Tesla electric vehicles would look a lot like a pared-down version of the Model Y.
The notion that at least one of the more affordable Tesla models – the company keeps mentioning cheaper vehicles, plural, in its communications with investors – would be fundamentally a Model Y has been around for months.
The confirmation of sorts came as Musk made off-the-cuff remarks on the post-results call this week – right after another Tesla executive said that the company didn’t want to get into a discussion about what the car would look like – but that is likely to do little to pull Tesla (TSLA) out of its sales slump.
That’s because to really get people excited about the brand again, Tesla needs “actual new vehicle models,” not just updates to existing ones, CFRA analyst Garrett Nelson said in an interview.
“It’s been over five years now since Tesla made its first Model Y delivery, and the only new model the company has brought to market in that time has been the Cybertruck,” Nelson said.
Musk and other executives did not mention the Cybertruck at all during the call. Their emphasis was entirely on robotaxis and a future robotaxi network, and on the company’s Optimus robot.
A revamped Model Y, launched earlier this year, appears to have done little for Tesla sales.
Tesla delivered 384,122 EVs in the second quarter, down from 444,000 in the same quarter of 2024. The company groups Model 3 and Model Y sales together and does not offer sales breakdowns by country or region.
On the call, Musk went as far as promising to offer robotaxi services to roughly half the U.S. population by the end of the year.
“Meanwhile, competition has increased, overall EV sales growth is waning – and the tax-credit expiration won’t help – and consumers have since shown much greater interest in hybrids, so Tesla is really paying the price for dragging its feet on new models over the last few years,” Nelson said.
Lower-priced vehicles are usually money losers, as well. Several carmakers have either done away entirely with entry-level cars or sent their production lines overseas to try to boost slim profit margins.
Some see those cheaper cars as gateway vehicles to a brand. But brand loyalty is not as strong as it used to be, as consumers have been increasingly squeezed by higher prices and interest rates.
The average price of a new car in the U.S. has hovered around $48,000 this year, and that’s before tariff costs are factored in. In June 2020 it was about $39,000, according to Edmunds.com. General Motors Co. (GM) said this week it plans to raise prices of its North American vehicles by between 0.5% and 1%.
For Tesla, the economics of a lower-priced vehicle would be highly dependent on consumers also subscribing to Full Self Driving (Supervised), Tesla’s suite of advanced driver-assistance systems meant for city driving, which is available as a one-time purchase for $8,000 or as a $99 monthly subscription.
Many people might be “reluctant” to go for that, Nelson said.
In the post-results call with analysts, Musk said that the “biggest obstacle” for the cheaper Model Y is that people want to buy the car but don’t have enough money to make the purchase.
“Literally, that is the issue. Not a lack of desire, but lack of ability. So the more affordable we can make the car, the better,” he said.
But Wall Street is not so sure about the desire part of the equation. Interest in EVs in general has waned, and the Tesla brand has been badly damaged by Musk’s involvement in right-wing politics in the U.S. and elsewhere.
Musk then went on to presumably alienate some supporters of President Donald Trump by very publicly feuding with the president and vowing to start a third political party in the United States.
Several investment banks have dialed down sales expectations for Tesla. While a small sales boost could come from a cheaper Model Y entering volume production later this year, there’s a bigger drag ahead, as federal tax credits for EVs are slated to end in late September.
Morgan Stanley on Thursday tweaked its sales forecast lower for the second half of the year and for 2026, saying the move was “a result of the removal of EV consumer tax credits,” partly offset by the cheaper Model Y reaching volume production this year. The investment bank expects sales of 1.85 million Teslas next year, down from a previous expectation of 1.89 million.
The FactSet consensus is for sales of 1.65 million Tesla vehicles this year, below the 1.79 million sold in 2024 and the 1.81 million in the year before that. The consensus for 2026 is at 1.95 million.
And while consumers might appreciate the option to buy a cheaper Model Y, Wall Street largely has set its sights on robotaxis and the Optimus humanoid robots as the real future moneymakers at Tesla.
The “overwhelming key to the Tesla story over the next year is the success of its Unsupervised FSD technology and robotaxi traction,” Stephen Gengaro at Stifel said in a note Friday.
A successful expansion of robotaxis in Austin, Texas, plus a potential rollout in a few other markets “is likely a catalyst for the shares,” Gengaro said.
Meanwhile, Tesla’s stock continues to underperform the broader equity market. The stock is down about 21% this year, including an 8% wallop on the first trading day after the most recent quarterly results. The S&P 500 index SPX has gained around 9% in 2025.
-Claudia Assis
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07-26-25 0905ET
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