The Critical Role Tesla's Highland Project Will Play

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Tesla announced a recent project called Project Highland. It's a revamp of the Model 3. This is critical and here's why.

Tesla Project Highland

Tesla's demand seems to be an issue many are worried about. In fact, Tesla's P/E ratio has compressed greatly in part to this worry of investors. Tesla continues to improve its manufacturing processes and will be able to sell its Model Y at impressive margins. It's a do it all SUV and is all electric. This is a highly popular vehicle category.

The price bracket between $30,000 and $40,000 is even more popular and has even more demand. The Model Y will continue to be over $60,000 even with 4680 batteries. Demand for that will continue. The smaller price bracket has a huge market and Tesla needs a $30,000 car.

You must think of gas cars and EV cars differently. Because of the massive savings and benefits of EV's, along with Tesla's features, you will pay a little more for an EV. You might pay $35,000 for Tesla's Highland EV. This could have even more demand than an electric crossover SUV.

The Model Y and the current Model 3 are not hitting this market. The RWD Model Y doesn't have enough range for the U.S. market, even if it's in the low $50,000 price range. Tesla's Project Highland is an answer to getting into this smaller price bracket that will have even more demand.

Project Highland will include many improvements to the Model 3. I've stated that Tesla needs to greatly reduce the cost of the Model 3 even if it looks like an entirely new vehicle. They should take the standard range RWD version only and make it something else entirely. This is what Project Highland should be.

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Revamp of Model 3

Tesla will need to ramp up the Model 3 RWD version. Tesla will need to reduce the price in order to meet the smaller bracket demand. The only way to do this is to reduce the cost of the Model 3. The current factories are at high volume production, so retooling will be difficult.

Tesla can reduce the cost of the Model 3 and create around $5,000 of savings. Then, with the $7,500 tax credit, you get a $47,000 price reduce to $35,000. That's the sweet spot now. I still think Tesla needs to create a bit more savings than that, but that is close.

The bottleneck is how quickly can Tesla replicate their 4680 battery lines. This is one of the ways the cost of the Model 3 RWD will be reduced. Tesla needs to make an LFP structural battery pack. Then they need to make it in two castings - or even one if possible.

Tesla needs to remove expensive features that aren't necessary. I don't work at Tesla and don't know what the most expensive parts of the Model 3 are. That $5,000 or more price reduction is the key and if I were Elon Musk, I would create incentives to anyone who could get the Model 3 to a much lower price.

How much will the IRA affect the demand of Tesla vehicles? It's possible it will drive demand up so high that those who thought Tesla had a demand problem will be stunned. Tesla should get to a $35,000 price point first. Then they should keep making improvements to reduce the price even more.

Then they should begin work on a compact vehicle in their Mexico giga factory, which is supposedly announced, and work to build a $25,000 vehicle there without as many bells and whistles and nice features. Just the heat/cold air controls, seat controls, and a center screen that can control the vehicle.

Will Tesla be able to reduce the cost of the Model 3? Will the IRA greatly increase Tesla's demand?

For more information, see this video from Tesla Economist:

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Jeremy Johnson is a Tesla investor and supporter. He first invested in Tesla in 2017 after years of following Elon Musk and admiring his work ethic and intelligence. Since then, he's become a Tesla bull, covering anything about Tesla he can find, while also dabbling in other electric vehicle companies. Jeremy covers Tesla developments at Torque News. You can follow him on Twitter or LinkedIn to stay in touch and follow his Tesla news coverage on Torque News.

Image Credit, Tesla, Screenshot