While Tesla executives have denied there were plans to launch a $25,000 'Model 2,' analysts are envisioning the product's arrival.

Chengdu-based Sinolink Securities said in a research note released Monday that Tesla's mission to advance the use of clean energy is not aimed at building a luxury brand, so it is in its core vision and interest to launch a Model 2 priced at RMB 160,000 (about $25,000).

So how will Tesla manage to get the price of the vehicle down to this level? The note suggests that this will be achieved primarily through price reductions in batteries and interior and exterior body trim and through gross margin compression.

According to Sinolink Securities analysts:

The price differential for traditional car downgrades comes primarily from the engine, body, and interior and exterior trim.

By breaking down the Model 3's BOM costs, we estimate that the price reduction path and price reduction margins for each component include:

RMB 5,000 for battery reduction; RMB 26,000 for body and interior/exterior trim reduction; RMB 2,000 for motor electric control reduction; and RMB 1,500 for thermal management reduction.

Considering the appropriate compression of gross margin level, the selling price can be lowered to RMB 165,000.

In the Chinese market, Tesla models are currently priced at RMB 250,000 or more, and sales in this price range account for 15% of the Chinese market.

If Tesla were to launch an RMB 160,000 model, that price range would cover 34 percent of the Chinese market, the analysts said.

The analysts expect the ceiling for Model 2 sales in this scenario to exceed that of the Toyota Corolla, which sells more than 1 million units a year worldwide.

(Photo: CnEVPost)