The new Model 3, priced under $27,000

The new Model 3, priced under 200,000 yuan ($27,000 in US dollars), is a result of Musk’s cost-cutting efforts, providing the most extreme cost reduction for the most affordable price.

The Model 3 is truly a relentless cost-cutting machine.

Former Tesla CFO, Zach Kirkhorn, had previously revealed that Tesla has continuously been refining the cost-cutting processes for the Model 3. By 2022, the production cost of a single Model 3 variant had been reduced by at least 30%.

Zach Kirkhorn

In our recent article , we tracked some of the cost-cutting actions taken for the new Model 3. Aside from extending the single-piece casting technique from the vehicle’s body to its interior, Tesla also made reductions in storage and memory performance for the smart hardware HW 4.0. This was part of an all-encompassing effort to achieve the “ultimate cost reduction.”

However, it seems that we may have underestimated the tactics of Tesla’s “cost-cutting master.” X blogger @teslashanghai brought forth the latest information on the new Model 3:

The new Model 3 is set to undergo capacity ramp pressure testing on August 25th, and Tesla expects to reach a daily production capacity of 1,200 units by early September. Based on this estimate, deliveries for the new Model 3 are projected to begin in late September.

In terms of appearance, the new Model 3 rivals the allure of the Model S, especially with the redesigned front lighting.

The new Model 3 will eliminate all radar sensors and won’t adopt HW 4.0 like the Model Y. Instead, it will feature the HW 3.5 smart driving hardware.

Following a series of cost-cutting measures, the pricing for the new Model 3 is estimated to be around $27,000 (equivalent to approximately ¥200,000).

The screenshot is from X@teslashanghai.

The $27,000 Model 3 might no longer be mere speculation and conjecture from the sidelines. Considering the current situation, we can now delve deeper into observing Tesla’s next steps.

Tesla’s Production Arena

The imminent arrival of the new Model 3 is no secret. According to images captured by the blogger using a drone at the Shanghai factory, a large number of vehicles covered with white cloth have been transported to the factory’s parking lot. The count of covered vehicles is continually increasing. These vehicles concealed by the white covering material are likely the Model 3 Highland units ready for production.

The captured images are from JasonYang.

Interestingly, the timing of the late September deliveries is quite strategic. Besides the new Model 3, Tesla’s all-electric truck, the Cybertruck, is also poised for launch. According to a post on X by an individual identified as Bill, who appears to be an internal Tesla employee, the Cybertruck is being transported to various destinations for final testing. The final few weeks are all that’s left before the Cybertruck’s ultimate delivery.

Considering the timing, Tesla doesn’t seem to rule out the possibility of launching the new Model 3 alongside the Cybertruck. If this “dual launch” comes to fruition, it would mark Tesla’s first-ever simultaneous release of two new vehicle models.

The images of the transporting Cybertruck are from X@SERobinsonJR.

“Achieving production transition in silence” is Tesla’s primary goal in delivering the new Model 3, much like how the transition of production lines occurred silently at both the Shanghai factory and the Fremont plant. However, despite the seamless production transitions, Tesla’s production line pressures are anything but insignificant. Tesla has faced financial distress due to capacity expansion. In 2017, Tesla embarked on large-scale production of the Model 3, but the journey of expanding production capacity was extremely challenging. During the frantic two-year expansion process, Tesla came close to bankruptcy in 2018.

The images are from Andrej Sokolow/ dpa.

“We were within single-digit weeks of bankruptcy,” Musk described that most challenging period when Tesla was on the brink of drowning in the frantic pace of expansion, entangled in what he called “production hell”. However, compared to passively falling into the “production hell”, Tesla now, with the simultaneous large-scale production of the new Model 3 and Cybertruck, seems more like actively creating its own “arena of capacity”.

Furthermore, according to exclusive information from 36Kr’s PowerOn, the battery production line within Tesla’s Phase 1 Shanghai Gigafactory is planned to resume production in September. This Phase 1 battery line was temporarily shut down in July this year for automation upgrades. However, the impending delivery of the new Model 3 has reactivated order demand, leading Tesla to plan restarting the Phase 1 battery line to ensure production capacity for the new Model 3.

This time, Tesla appears to be well-prepared.

Tightened Security Measures

In mid-2023, Tesla was reported to have experienced a massive information leak, with leaked files amounting to 100GB. Among the most prominent leaks was German media Handelsblatt’s acquisition of early production reports on the Cybertruck. Handelsblatt subsequently published the confidential documents and pointed out the truth behind the continuous delays of the Tesla Cybertruck, attributing them to its poor performance.

Recently, this leak debacle came to a halt. Tesla disclosed in a legal document that two former Tesla employees were responsible for the large-scale leak and subsequently filed a lawsuit against them.

The images are from Bloomberg.

Originating from internal leaks that angered Musk, he seems to have reached a point where he can no longer tolerate continuous leaks about upcoming vehicles. Tesla has implemented stricter measures to prevent leaks within the company.

In the parking lot of the Shanghai Gigafactory, numerous vehicles resembling the new Model 3 are covered with white materials, making it difficult to identify them clearly even from the perspective of drones.

The images are from X@Tslachan.

The strict confidentiality measures are not limited to the Shanghai factory. In the Tesla Gigafactory in Austin, Texas, an independent information security team has been established to “protect” the Cybertruck. According to foreign netizens, in order to counter long-term leaks from unauthorized photography, Tesla has equipped the Cybertruck with a Model Y security vehicle for road testing. The Model Y, marked with the word “SECURITY” on its body, will play the role of surveillance and security, actively deterring internal employees or pedestrians suspected of taking unauthorized photos.

The images are from X@peterdog15.

Returning to the details of the cost reduction for the new Model 3, as mentioned earlier by the blogger, the new Model 3 will not use the HW 4.0 hardware like the Model Y.

The reliability of this information may not be very high, and whether the new Model 3 will be equipped with HW 3.5 or HW 4.0 hardware remains uncertain.

HW 4.0

The images are from X@klwtts.

On one hand, the HW 4.0 hardware has already been incorporated into the Model Y early this year, providing Tesla with ample real-world driving experience and reducing the cost of re-tuning. On the other hand, HW 4.0 itself has undergone a round of “trimming,” with Tesla cutting down half of the GPU and storage space from the original version. The adjusted HW 4.0 won’t support in-car gaming through Steam. Given that the Model Y is a high-volume model in the same category, it would make sense for it to use HW 4.0.

Furthermore, it’s likely that HW 3.5 hardware will be an improvement upon the HW 3.0. However, according to channel sources, there’s almost no inventory of HW 3.0 components in the US, and the Fremont factory is one of the main production facilities for the new Model 3. This has led to confusion regarding the news of the Model 3 using HW 3.5.

The images are from AP.

Certainly, if Tesla does ultimately opt for HW 3.5, there would be only one reason: the “trimmed” HW 4.0 still cannot meet Musk’s cost reduction expectations.

Tesla’s internal discussions have recently introduced new cost reduction targets for the new Model 3. In addition to the initial goal of lowering production costs by 30%, the new Model 3 is expected to achieve an additional 14% reduction in costs.

Musk aims to lead a new “price war” through the new Model 3. With the extreme cost-cutting efforts, the vision of a Model 3 priced at 190,000 RMB is becoming increasingly realistic.