According to four individuals familiar with the matter, Tesla Motors (TSLA.US) is developing a new, smaller, and more affordable electric SUV. The company has reportedly initiated discussions with suppliers regarding the details of this compact SUV plan. This model is an entirely new product, not a derivative of Tesla's existing Model 3 or Model Y. The discussions covered manufacturing processes and specifications for various components.
Three of the sources indicated that the compact SUV will be manufactured in China, while another suggested Tesla also plans to expand production to the United States and Europe. Two sources revealed the vehicle's length to be 4.28 meters, notably shorter than the best-selling Model Y SUV, which is approximately 15.7 feet long.
A key question is whether developing this small SUV signals a strategic return to mass-market human-driven electric vehicles, after CEO Elon Musk decided in 2024 to cancel a highly anticipated low-cost car project to focus on autonomous taxis and humanoid robots. However, according to one person familiar with the new vehicle project and an employee knowledgeable about Tesla's current product philosophy, such a vehicle could potentially serve both objectives. The employee, who neither confirmed nor denied specific model details, stated that Tesla's current goal is to create vehicles capable of full autonomy but also offering a human-driving option. This approach acknowledges that while Tesla is committed to full self-driving across its lineup, many global markets may not be ready for widespread regulatory acceptance of driverless vehicles for years. Offering the option for driving controls could thus boost sales and keep Tesla's factories operating near full capacity.
This development comes as some analysts predict a third consecutive annual sales decline for Tesla's traditional electric vehicles, which currently generate the bulk of its revenue. Presently, Tesla operates a small fleet of autonomous taxis in Austin, Texas, many of which still have human safety monitors in the passenger seat. Tesla did not respond to requests for comment on the new model plans. All four sources described the project as being in early development stages, and it remains uncertain if Tesla has approved the vehicle for production. The company has a history of significant delays or cancellations in product development, such as the Roadster supercar and Semi truck concepts unveiled in 2017, neither of which has entered mass production.
Two sources said Tesla aims to price this new model significantly lower than its entry-level Model 3, which starts at $34,000 in China and around $37,000 in the US. Cost reductions are planned through the use of a smaller battery, resulting in a shorter driving range compared to the Model Y's 306-327 miles. One source added that the vehicle will feature a single motor instead of dual-motor performance options available on current models. Tesla also aims to substantially reduce the vehicle's weight to approximately 1.5 tons, compared to the Model Y's 2 tons. Three sources indicated production is planned for Tesla's Shanghai factory, though a start date is uncertain and unlikely to begin this year.
Tesla's journey toward affordable electric vehicles has been intermittent. Since beginning production of luxury electric cars in 2008, Musk has stated the company's true mission is to produce affordable, mass-market EVs, crucial for addressing the climate crisis. From 2020, Musk declared a goal of selling 20 million vehicles annually by 2030, nearly double the current sales of global leader Toyota (TM.US). A $25,000 car project, often referred to by fans and investors as "Model 2," was expected to drive explosive sales growth. However, reports in 2024 indicated Tesla had scrapped the Model 2 plan, though it intended to develop a robotaxi on the same platform. Later that year, Musk called producing a human-driven $25,000 car "pointless" and "foolish" as the company would soon launch autonomous vehicles. A former Tesla manager noted that a new, cheap traditional car would mark a significant shift from Tesla's philosophy up to mid-2025, as the company had previously pivoted to robotaxis as the key to reducing passenger costs per mile and owner charging expenses.
Following the cancellation of Model 2, Musk and other Tesla executives vaguely described new plans for "more affordable" vehicles. However, models launched last autumn were merely stripped-down versions of the current Model 3 and Model Y, offered as new "Standard" configurations with only modest discounts. The Model 3 Standard Range is priced at $36,990 and the Model Y at $39,990 in the US, prices some investors consider too high to attract new buyers, with no significant impact on overall sales volume yet.
Publicly, Musk and Tesla continue to emphasize the robotaxi and humanoid robot plans, which have helped maintain Tesla's remarkable market valuation of approximately $1.3 trillion—far exceeding what its financial fundamentals might support, even compared to other high-value tech peers. Last year, investors approved a compensation package that could award Musk up to $1 trillion in Tesla stock based on achieving a series of product and financial goals.
Tesla currently states it plans to start production this month on a two-door Cybercab robotaxi, first showcased as a concept in 2024 without a steering wheel or pedals. However, it is unclear when this vehicle will go on sale or be deployed in Tesla's planned robotaxi fleet. A spokesperson for the U.S. National Highway Traffic Safety Administration stated that Tesla has not yet applied for the federal exemptions required to sell vehicles without steering wheels and pedals.
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