Tesla at the Crossroads: Why Musk Chose Robotaxi over Model 2 (capitalfolly.com)

In February 2024 Elon Musk overruled senior Tesla executives and steered the company away from building the budget “Model 2” (~$25–28k) to double down on a Robotaxi fleet built on Tesla’s Full Self-Driving/Autopilot stack. Several senior leaders resigned afterward. The decision reflects a hard strategic choice: the Model 2 would pursue mass-market EV volume into highly competitive, low-margin territory dominated by Chinese rivals like BYD, while Robotaxi is a high-risk, high-reward pivot toward owning ride-hailing mobility and the software-defined transport stack. Technically and financially, the move makes sense from a valuation perspective. Tesla’s sky-high P/E (reported >250) prices in a future where Robotaxi disrupts Uber/Lyft, legacy automakers and even Waymo, so progress on autonomous fleet economics materially supports Tesla’s market value. Building Robotaxi prioritizes software, sensor/hardware scaling, fleet operations, regulatory rollout and capital for AV validation over the manufacturing and supply-chain expansion a new low-cost car would require. The trade-offs: regulatory uncertainty, intense competition in autonomy, possible brand and cultural fallout (explaining executive departures), and concentrated resource allocation — but the upside is a potential vertical monopoly that underpins Tesla’s valuation, which the company’s leadership evidently judged worth the gamble.