Tesla, the leading electric vehicle manufacturer, has announced a shift in its manufacturing strategy, prioritizing the utilization of its existing factories for the production of new and more affordable vehicles. This move could potentially delay the company’s plans to establish new factories in Mexico and India. The decision aims to increase production capacity by 50% from its current level of close to 3 million vehicles annually, without the need for additional investments in new manufacturing lines. Tesla’s strategy is seen as a prudent approach to vehicle volume growth, particularly amid uncertain economic conditions. The company acknowledged that this update may result in less cost reduction than previously anticipated but emphasizes the efficient utilization of capital expenditures during these uncertain times.
Tesla’s decision not to pursue the construction of new factories for its upcoming affordable vehicle models was met with positive reactions from investors. Tesla shares jumped 12% in after-hour trading despite the company’s quarterly results falling short of financial targets. Investors appreciated the company’s cautious approach, which avoids the risks associated with building new models in new factories. The company also hinted at the development of unidentified new models, indicating potential product diversification.
In January, Tesla CEO Elon Musk had stated the company’s aim to deliver a new, more affordable model in the second half of 2025. He highlighted the model’s revolutionary manufacturing technology and its role in driving Tesla’s future growth. However, Lars Moravy, Tesla’s head of engineering, acknowledged the risks associated with new manufacturing processes and production lines. As a result, the company has opted for a major strategy shift, utilizing its existing facilities to build low-cost vehicles in a fast and efficient manner.
Musk had previously planned to meet with Indian Prime Minister Narendra Modi to discuss major investments in an auto factory for the production of a small, affordable model. However, Musk canceled the meeting at the last minute due to pressing Tesla obligations. In the past, Musk had expressed Tesla’s intention to build a factory in Mexico, but the timing of the project was contingent on economic factors and interest rates that influence vehicle affordability. Tesla has not provided further updates on its plans for Mexico and India.
Tesla’s smaller peer, Rivian, recently announced plans to produce its smaller, less expensive electric R2 SUVs at its existing U.S. factory. This move aims to accelerate deliveries of the R2 in the first half of 2026. Rivian had initially planned to build the R2 at a new $5 billion plant.
