Tesla to develop new smaller and cheaper EV, say sources

Tesla is working on a new smaller and more affordable electric SUV, according to people familiar with the matter. The company has recently contacted suppliers to discuss the design, manufacturing process, and parts of the new vehicle. This SUV will be a completely new model and not a version of the Model 3 or Model Y.

Sources say the vehicle is expected to be built in China, with plans to expand production to the United States and Europe. The new SUV will be around 4.28 meters long, making it noticeably smaller than the Model Y.

This move comes after CEO Elon Musk canceled a low-cost EV project in 2024 and shifted focus toward robotaxis and humanoid robots. It is still unclear whether this new SUV signals a return to making affordable cars for everyday drivers or if it will be part of Tesla’s long-term plan for fully self-driving vehicles. Some sources say the model could support both options, allowing it to be used as a driverless car while still offering manual driving.

Tesla is aiming for full automation in the future but understands that many countries are not ready for driverless cars yet. Keeping both options could help the company sell more vehicles and keep its factories running efficiently.

While Tesla is pushing toward autonomous technology, experts believe its traditional EV sales may decline for the third year in a row. Currently, Tesla operates a limited number of robotaxis in Austin, Texas, many of which still have human safety monitors.

The project is still in early development, and it is not yet confirmed if Tesla has approved production. The company has previously introduced concepts like the Roadster and Semi truck that have faced delays or have not been fully produced.

Sources say Tesla plans to price the new SUV much lower than the Model 3, which starts at around $34,000 in China and $37,000 in the U.S. To reduce costs, the car may use a smaller battery, offer a shorter driving range, include a single motor instead of two, and be lighter in weight.

The vehicle is expected to be manufactured at Tesla’s Shanghai factory, but production is unlikely to begin this year.

Tesla has long aimed to produce affordable electric cars, but its efforts have faced delays and changes in direction. The company once planned to launch a $25,000 EV, often called the Model 2, but later canceled it in favor of focusing on robotaxis. However, the development of this new smaller SUV may show a possible shift back toward more affordable electric vehicles.