Tesla (TSLA.O) is designing a revamped version of Model 3, according to four people familiar with the effort, as the top EV maker seeks to reduce production costs and increase the appeal of the five-year-old electric sedan.
One focus of the redesign codenamed “Highland” is to decrease the number of components and complexity in the interior of the Model 3 while concentrating on features that Tesla buyers’ cherish, including the display, according to the people, who requested to remain anonymous because the revamp has not been announced.
The previously unannounced redesign happens as the electric sedan faces extreme competition from models from the likes of Hyundai (005380.KS), China’s BYD (002594.SZ) and coming launches from other top automakers.
Notably, the revamp of the battery-powered sedan, which could also include some modifications to the Model 3’s exterior and powertrain performance, will start production at Tesla’s plant in Shanghai and the company’s Fremont, California factory, two of the people said. Tesla’s Shanghai Gigafactory will start the production of the redesigned Model 3 in the third quarter of next year, they said.
It was not known when production would begin at the Fremont plant or how huge a cost savings Tesla would attain from the redesign as it works with suppliers.
The effort highlights an approach to vehicle development pioneered by Tesla and now being imitated by other automakers, including Toyota Motor (7203.T), that takes away complexity – and cost – in production.
It is also an example of a major project at Tesla that has moved ahead even as Chief Executive Elon Musk has concentrated on his troubled takeover of Twitter in recent months, an area of concern for Tesla investors.
Tesla would not reply to a written request for comment from reporters.
Change You Can See
The redesign for the Model 3 enhances the revamp of the Model S — Tesla’s premium EV sedan — that was launched in 2021. That redesign added an airplane-style yoke as a replacement for a traditional steering wheel and got rid of buttons and traditional air vents as part of a minimalist interior where the centerpiece is a 17-inch electronic display.
In that context, the Model 3, Tesla’s most affordable EV starting at just below $47,000 in the United States, had been the automaker’s hottest-seller but is being outshined by the Model Y crossover. With only four models in production, styling changes to any part of Tesla’s lineup has a great importance compared to established automakers.
Ed Kim, president of AutoPacific Group, which monitors market trends and production, said the current Model 3 has already been upgraded from the version that first went on sale in 2017 because of the way Tesla updates information, battery performance, and entertainment options through software, even if it still looks the same.
“Having said that, consumers still tend to equate visual changes with newness,” he said. “Tesla knows visually tangible changes are in order.”
“The upcoming changes that potential customers can see and feel will be very important in ensuring that EV customers still have Tesla at the top of their minds as truly excellent alternatives to Tesla are starting to flood the market,” he said.
Keep It Simple
Musk has promoted a simplified approach to design and production at Tesla that the Highland project enhances, said the people familiar with the development.
Tesla has pioneered the use of large casting machines known as Giga Press and developed by IDRA Group in Italy to make single, bigger pieces of a vehicle in assembly, cutting cost and speeding production. It has also developed a structural battery pack that get rids of more expensive modules.
Musk has said Tesla is looking to reduce prices through simplification and developing a small-car platform that would be half the cost of the Model 3.
“Over and over, we found parts that are not needed. They were put in there just in case or by mistake. We eliminated so many parts from a car that did nothing,” Musk said in an interview at a Baron Funds conference earlier in November.
The approach is part of what has made Tesla the most successful electric vehicle maker while many competitors are still unprofitable. In the third quarter, Tesla earned a profit of just over $9,500 for each car sold, compared to about $1,300 for Toyota, based on disclosures by both companies.
This revamp of the Model 3 occurs at a time when sales in China, its second-biggest market after the United States, are under pressure. Sales for the Model 3 in China dropped by 9% in the first ten months compared to a year ago, while BYD’s Qin and Han electric sedans outmatched the Model 3, according to China Passenger Car Association.
To increase sales, Tesla reduced prices for Model Y and Model 3 in China by as much as 9% in October and offered an additional discount for customers who took immediate delivery.
Sam Fiorani, who monitors Tesla and industry-wide production at Auto Forecast Solutions, said the upcoming modifications to the Model 3, which he knew were coming, showed the power of Tesla’s approach in doing away with complexity.
“They are always looking for ways to make EVs profitable, and more profitable,” he said.