Tesla’s (TSLA) on-again, off-again plans for a smaller, cheaper electric EV are back on.
Reuters reports that Tesla is developing a cheaper EV SUV, citing four people familiar with the matter. Tesla has recently approached suppliers to discuss manufacturing processes and component specifications for the new vehicle. However, the report notes that it’s still early days and that the company has made no concrete plans to proceed with production.
The car would be about 14 feet long, much smaller than the nearly 15-foot Model Y. Most importantly, the report suggests it would be a brand-new vehicle, not a variant of the existing Model 3 or Y lineup.
Tesla stock was slightly higher in premarket trade.
Reuters’ sources said the compact SUV would initially be produced in China for that market, then eventually expand to US and European production. Though Tesla has not officially green lit production, supplier conversations suggest the project is moving forward.
Tesla reportedly targeting a price substantially below the Model 3, which starts at $34,000 in China and about $37,000 in the US. Tesla plans to use a smaller battery — which likely means a shorter driving range than the Model Y RWD’s 321 mile limit.
Thursday’s report marks another notable reversal for CEO Elon Musk. In 2024, he scrapped Tesla’s long-anticipated cheap EV project entirely, pivoting the company’s focus toward robotaxis and humanoid robots.
In Walter Isaacson’s biography of Musk, the author noted that Musk once considered a $25,000 EV “not that exciting of product.” But Tesla design chief Franz von Holzhausen eventually won him over by presenting the Cybercab robotaxi concept alongside a similar version — a cheap EV with pedals and a steering wheel. “Musk loved the designs,” Isaacson wrote.
Late last year Tesla chair Robyn Denholm suggested the upcoming Cybercab, a purpose-built robotaxi with no steering wheel or pedals, could be equipped with those driver inputs creating a cheap EV, costing around $30,000.
While that hasn’t come to pass yet, the cheaper EVs Tesla has offered in the interim — stripped-down versions of the Model 3 and Model Y priced at $36,990 and $39,990 haven’t moved the needle much if Tesla overall sales are any indication. Many analysts believe those prices are still too high to drive meaningful volume.
Last year Deutsche Bank analyst Edison Yu, who calls the potential new vehicle the “Model Q,” sees it as a real possibility but with caveats. “As it pertains to the ‘Model Q,’ we still think a smaller form factor + cheaper vehicle is possible but may be limited to certain [geographic regions] and launch in 2026,” Yu wrote in a note published in late November.