Can Tesla’s Cybertruck Overcome Production Pitfalls?

Tesla (TSLA) is expected to begin deliveries of its new Cybertruck on November 30, more than two years behind schedule. When CEO Musk first unveiled the Cybertruck prototype in 2019, he touted a vehicle with more than 300 miles of range that would be priced around $50,000, cheaper than the price consumers were paying for a Ford F-150, America’s best-selling pickup.  However, Tesla has since halted specifications from its Cybertruck order page, and Musk has warned about cost and manufacturing challenges.

Tesla started taking deposits for the Cybertruck, marketing starting prices ranging from $39,900 to $69,900.  However, due to rising production costs and inflation, the price of the Cybertruck could climb to around $60,000.  In an earnings call last month, CEO Musk said ramping up production of the truck was a challenge on par with the “production hell” that the company endured in the past. Musk warned that it may be another 18 months until the company reaches volume production and generates significant cash flow from the pickup.

CEO Musk said Tesla is unlikely to reach an annualized production rate of 250,000 Cybertrucks until sometime in 2025.  Some analysts think that due to cost overruns and delayed production, Tesla should abandon the Cybertruck.  Jeffries said last week that Tesla shares would benefit if the company decided to cancel the Cybertruck, saying the truck is “off-mission” for Tesla and has diverted resources from high-volume global segments of its other established vehicles.

Significant production headwinds have delayed the production of Tesla’s Cybertruck.  The pickup truck's body is made from a stainless-steel alloy; while corrosion-resistant and doesn’t need painting, it is costly and difficult to shape and weld together.  It is also heavier than the steel used in the production of other vehicle bodies, which prompted Tesla last month to announce that it will adopt an 800-volt architecture for the Cybertruck from the 400-volts that power its other vehicles, citing the cost savings this brings to heavy vehicles.   Also, Tesla has struggled to scale up production of its new 4680 batteries, which has held up production of the Cybertruck.

Cost competitiveness may be the final determination of whether Tesla’s Cybertruck is a success. The Cybertruck will require a very compelling price, similar to or better than the $50,000 starting point for Ford’s electric F-150 Lightning.  However, once the production of the Cybertruck ramps up, Tesla may have the advantage of a built-up demand for the truck.  CEO Musk said last month that over a million people have already put down $100 to reserve a place in line to buy the Cybertruck.  That should be plenty to sustain several years of Cybertruck sales for Tesla.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.