Musk misled investors on Tesla's affordable EV, preventing stock decline
What's the story
Tesla executives were reportedly alarmed last year when CEO Elon Musk denied a Reuters report about the cancellation of a planned all-new $25,000 electric vehicle (EV), the publication reveals.
Investors anticipated that this EV would significantly boost vehicle sales growth.
The denial came despite internal knowledge that the low-cost vehicle, dubbed Model 2 by many investors, had indeed been canceled.
Instead of this affordable model, Tesla shifted its focus to self-driving robotaxis.
Market reaction
Musk's denial and its impact on Tesla's stock
Musk's denial of the Reuters report, "Reuters is lying," was posted on X minutes after the story was published on April 5, 2024. This halted a 6% decline in Tesla's stock.
The shares did recover some of the loss post-Musk's post, but still ended up closing down by 3.6%.
This incident highlights how Musk's public statements can significantly impact market performance.
Executive concerns
Internal confusion over Musk's denial
Since the executives knew Musk had actually canceled the low-cost vehicle, his denial confused some senior managers, who even asked if he had changed his mind.
However, Musk rejected their concerns and maintained that the project was still dead, Reuters reports.
This sheds light on the internal struggles of Tesla in delivering a low-cost, mass-market EV, which is considered a core promise of the company.
Strategic pivot
Tesla's shift to affordable models
Despite the controversy over Musk's denial, some Tesla executives were not overly concerned.
They said the automaker keeps its product plans flexible to respond to market conditions.
Weeks after Musk's post on X, Tesla published an investor update assuring that it still planned "new vehicles, including more affordable models" on current manufacturing lines.
Product similarities
Affordable models resemble existing ones
Instead of an all-new model, Tesla is working on stripped-down versions of the Model 3 sedan and Model Y compact SUV, Reuters reported last month.
These cars, which were set to roll out in the first half of 2025, have now been delayed.
During Tesla's earnings call in April, engineering chief Lars Moravy said that these affordable models would "resemble in form and shape the cars we already make."
Regulatory worries
Concerns over SEC scrutiny and investor confusion
Some Tesla executives were worried that denying the Model 2 was dead could land Musk in hot water with the Securities and Exchange Commission (SEC) for misleading investors about a future product line.
This concern stems from Musk's previous $40 million settlement in 2018 over another social media post that allegedly misled investors about his plans to take Tesla private.
Sales slump
Tesla's 1st annual vehicle sales decline in 2024
Tesla posted its first annual vehicle sales decline in 2024, with a 13% drop in the first quarter of 2025.
The company is facing rising competition and protests against Musk's work in the Trump administration.
In April, Chinese automaker BYD outsold Tesla in Europe for the first time and is taking lead in affordable EVs.