Tesla Inc. is said to be working on a brand new small and affordable electric car – a compact SUV – as the company led by the world’s richest man seeks to regain the distinction of being the world’s No. 1 EV maker.
The Austin, Texas-based company has contacted suppliers in recent weeks to discuss details of plans for a compact SUV, which would be a new vehicle and not a version of Tesla’s existing Model 3 or Y, four people familiar with the development told Reuters. He said the manufacturing process and specifications for various components were discussed in the talks.
Three of the people said the compact SUV will be produced in China, and one said Tesla also aims to expand production in the United States and Europe. The length of the car will be 4.28 metres, at least two people said. It is much shorter than Tesla’s best-selling Model Y SUV, which is about 4.8 meters long.
The effort follows Chief Executive Officer Elon Musk’s decision to cancel a much-anticipated low-cost EV project in 2024 and focus the company on robotaxis and humanoid robots. A key question is whether this latest effort to develop a small SUV signals a strategy shift toward mass-market, human-driven EVs or whether the new model will align more with Tesla’s vision for fully autonomous vehicles.
Such a model could potentially serve both purposes, according to one of the people familiar with the new project and a Tesla employee with knowledge of its current product philosophy. The Tesla employee declined to confirm or deny details of any specific vehicle, but said, in general, the automaker now aims to create models that will be driverless but offer human-driven options.
While aiming for full autonomy across its lineup, Tesla realizes that driverless vehicles will neither gain meaningful adoption nor regulatory approval for years in many global markets, the person said. Preserving the option to build models with or without driving controls could lead to more sales and help ensure Tesla can keep its car factories running close to capacity, the person said.
As Tesla pursues a driverless future, some analysts predict that sales of traditional EVs, which provide the vast majority of revenue, will decline for the third consecutive year. So far, Tesla only operates a small number of robotaxis in Austin, many of which have human safety monitors in the passenger seat.
Tesla did not respond to requests for comment about plans for the new vehicle. Four people familiar with the project said it is in the early development stage. Reuters could not determine whether Tesla has given the green light for production of the car.
The automaker has a history of starting development on products that are long delayed or canceled. For example, Tesla showed concept vehicles for a roadster supercar and cargo truck in 2017, but has yet to produce a sports car or mass-produce a Semi.
Two sources said Tesla aims to offer the new vehicle at a significantly lower price than its entry-level Model 3 sedan, which starts at $34,000 in China and about $37,000 in the United States. He said Tesla planned to save costs partly by using smaller batteries, which would mean less driving range than the 306 to 327 miles for the Model Y.
The automaker also will offer one electric motor instead of two, a performance option on existing Tesla models, one of the people said. Tesla also wants to make the car much lighter, this person said, about 1.5 metric tons, compared with about two tons for the Model Y.
The new model will be produced at Tesla’s Shanghai factory, the three people said. Although the timing is unclear, the people said the car is unlikely to start production this year.
Tesla’s start-stop history on affordable EVs
Several years after Tesla began producing luxury electric cars in 2008, Musk said the company’s real mission was to produce affordable, mass-market electric vehicles that would be key to fighting the climate crisis. But efforts to achieve that goal have so far fallen short.
Musk said in early 2020 that Tesla aimed to sell 20 million vehicles annually by the end of the decade, nearly double that of current global sales leader Toyota. Musk had claimed to produce a $25,000 EV, often called the “Model 2” by Tesla fans and investors, that was expected to lead to explosive vehicle-sales growth.
Then in 2024, Reuters reported that Tesla had abandoned plans for a Model 2, although it still planned a driverless robotaxi on the same platform. Tesla’s biggest EV rivals in China had already started producing much cheaper EVs. Later that year, Musk said it would be “futile” and “foolish” for Tesla to build a $25,000 EV with human drivers because the company would soon introduce driverless vehicles.
A former Tesla manager said a brand-new affordable conventional car would represent a significant departure from the company’s vision by mid-2025. By then, the manager said, Tesla had abandoned efforts to mass-produce an entry-level car in favor of robotaxis as a key to lowering costs per mile for riders and charging car owners for trips.
After killing the Model 2, Musk and other Tesla executives described various plans for new, “more affordable” EVs in vague terms. However, when the vehicles last arrived, they were stripped-down versions of the existing Model 3 and Y, offered in new “standard” trim levels at only slight discounts.
The US prices of $36,990 for the Model 3 Standard and $39,990 for the Model Y seemed to some investors too high to attract a new class of buyers and yet have not made a significant difference to Tesla’s overall sales.
Is driverless cybercab on track?
Publicly, Musk and Tesla have continued to push plans for robotaxis and humanoid robots, which has been effective in maintaining Tesla’s attractive stock-market value.
Tesla has a market capitalization of around $1.3 trillion – which far exceeds its financial fundamentals even when compared with high-flying tech competitors. Investors last year approved a compensation package worth up to $1 trillion for Musk in Tesla stock tied to a series of product and financial targets.
The automaker now says it plans to begin production this month of a two-door CyberCab robotaxi, first introduced as a concept vehicle in 2024, that will have no pedals or steering wheel. But it’s unclear when the car will go on sale or when it will be used in Tesla-operated robotaxi fleets. A spokesman for the National Highway Traffic Safety Administration said the automaker has not sought the federal waiver necessary to sell a vehicle without a steering wheel or pedals.
