Tesla is developing a new compact electric SUV that would be significantly smaller and cheaper than its existing models, Reuters reported, citing four people familiar with the matter. The move signals a possible return to the mass-market strategy the company had stepped back from two years ago.
The automaker has contacted suppliers in recent weeks to discuss the manufacturing process and component specifications for the new vehicle, which would be an entirely new model and not a variant of the existing Model 3 or Model Y, the sources told the news agency.
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Three of the four persons said the compact SUV would be produced in China, while one added that Tesla also aims to expand production to the United States and Europe. The car would measure 4.28 meters in length, about 14 feet, significantly shorter than the Model Y, which stretches to roughly 15.7 feet.
On pricing, two sources reportedly said that Tesla aims to offer the new vehicle at a substantially lower price than its entry-level Model 3 sedan, which currently starts at $34,000 in China and around $37,000 in the United States. Cost savings would come in part from using a smaller battery, which would also mean a shorter driving range compared to the 306 to 327 miles offered by the Model Y.
In 2024, reports said that Tesla had scrapped a highly anticipated low-cost EV project, widely referred to as the "Model 2" by fans and investors, and pivoted the company toward robotaxis and humanoid robots. At the time, CEO Elon Musk called making a $25,000 human-driven EV "pointless" and "silly," arguing that driverless vehicles would soon lower the cost per mile for riders.
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Tesla was overtaken by Chinese EV giant BYD in global sales in 2025, with Tesla recording its second straight year of declining deliveries.
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