Tesla (TSLA, Financial) has postponed the U.S. launch of a more affordable Model Y SUV, just ahead of its 1Q25 earnings report. This delay raises concerns about Tesla's growth potential amid strong competition in the U.S. and China. Tesla experienced a 1% decline in deliveries in 2024, marking its first annual drop in over a decade. Investors were hoping that new, lower-priced models would reverse this trend.

With the delay of the affordable Model Y, revenue and EPS estimates for FY25 may face downward revisions. Although Tesla did not specify a reason, the focus on its robotaxi platform is likely a factor.

• In 2023, Elon Musk canceled plans for a $25,000 vehicle on an "unboxed platform" to prioritize the robotaxi. Consequently, Tesla decided to create more affordable versions of existing models, such as a stripped-down Model Y, rather than new low-cost models.
• This shift has delayed the affordable Model Y (codenamed E41) and possibly the basic Model 3 sedan. Although Tesla stated in January 2024 that production of new affordable models would start in 1H25, it now seems more likely in 2H25 or 1H26.
• An aging fleet lacking lower-priced models has allowed competitors to gain market share, particularly in China. Tesla's market share in China's BEV market fell from 11.7% in 2023 to 10.4% in 2024. New launches from Nio (NIO, Financial) and BYD Company (BYDDY, Financial) have intensified competition.
• Financially, the delay may stabilize margins but could result in stagnant or declining revenue. Rising costs amid a global trade war and flat revenue will pressure Tesla's profits.

The postponed launch of the affordable Model Y heightens Tesla's near-term financial risks and allows competitors more time to capture market share. As the global EV market focuses on affordability and scale, Tesla's outdated product lineup may lead to prolonged stagnation in sales and earnings.