Is Tesla Reviving Its Affordable Car Plan? Reports Say It is Developing a Small Electric SUV, Aiming for Production in China

Tesla is secretly advancing the development of a brand-new small, affordable electric SUV, a move that may signal the electric vehicle giant's strategic scales tipping back toward the mass market.

According to a report by Reuters on Thursday, four people familiar with the matter revealed that Tesla has recently proactively contacted suppliers to discuss manufacturing processes and component specifications for this compact SUV. The model will be an entirely new vehicle, rather than a derivative of the existing Model 3 or Model Y. Three of the sources said that the car is planned for production in China, with one person stating that Tesla also hopes to expand capacity to the United States and Europe.

Elon Musk halted the highly anticipated low-cost electric vehicle project in 2024, instead betting company resources on robotaxis and humanoid robots. This resumption of affordable car development has triggered a new round of speculation regarding Tesla's strategic direction—whether it is returning to the human-driven mass market or if full self-driving remains the core objective. Meanwhile, some analysts predict that Tesla's traditional electric vehicle sales will decline for the third consecutive year, adding more urgent commercial logic to this project.

Smaller, Lighter, Cheaper

According to two sources, the compact SUV will have a body length of approximately 4.28 meters, significantly shorter than the roughly 4.79 meters of Tesla's best-selling Model Y.

In terms of cost control, two sources stated that Tesla plans to price the new car below the entry-level Model 3—the latter has a starting price of about $34,000 in China and about $37,000 in the U.S.

To compress costs, Tesla plans to use a smaller battery capacity, which means the range will be lower than the Model Y's current level of 306 to 327 miles. Additionally, the new car will be equipped with a single motor rather than dual motors and will significantly reduce body weight, targeting approximately 1.5 metric tons, compared to the Model Y which weighs about 2 metric tons.

Three sources said the new car will go into production at Tesla's Shanghai factory, but the specific timeline remains unclear, with the likelihood of starting production within this year being low.

The Dilemma Between Autonomous Driving and the Mass Market

It remains uncertain which strategic objective this new car will serve.

One person familiar with the project and an internal employee knowledgeable about Tesla's current product philosophy both indicated that the new model could potentially serve both purposes. The internal employee declined to confirm or deny details of the specific model but stated that Tesla's current general direction is to create vehicles that can achieve autonomous driving while retaining the option for manual driving.

This employee explained that while Tesla is committed to advancing full self-driving across its entire product line, the company realizes that many global markets will find it difficult to achieve large-scale adoption of driverless vehicles for years to come, and regulatory approval is equally far off. Retaining the manual driving option helps expand sales scale and ensures factory capacity is fully utilized.

A former Tesla executive stated that launching a brand-new, low-cost traditional vehicle would be a major deviation from the company's strategic direction since mid-2025—previously, Tesla had abandoned plans for mass-producing entry-level models, turning instead to robotaxis as the core path for reducing the cost of travel per mile.

The Recurring Dream of Affordable Cars

Tesla's exploration in the field of affordable electric vehicles has a convoluted history.

Since starting with luxury electric vehicles in 2008, Musk has repeatedly stated publicly that Tesla's true mission is to produce affordable electric vehicles for the mass market.

Starting in 2020, he claimed Tesla's goal was to achieve annual sales of 20 million vehicles by the end of this decade and heavily promoted a $25,000 electric vehicle plan, referred to by outsiders as the "Model 2," viewing it as the engine for explosive sales growth.

However, in 2024, it was reported that Tesla had abandoned the Model 2 plan, only retaining the direction of developing robotaxis on the same platform. Musk stated at the time that producing a $25,000 electric vehicle for human drivers would be "meaningless" and "stupid" because Tesla was about to launch autonomous vehicles.

Since then, Tesla has introduced so-called "more affordable" new models, which are actually just de-contented "Standard" configurations of the existing Model 3 and Model Y, priced at $36,990 and $39,990 in the U.S. respectively. The discounts were limited, failing to effectively attract new customer segments, and had a negligible impact on boosting overall sales.

Four sources emphasized that the aforementioned small SUV project is still in the early development stage, and it cannot be confirmed whether Tesla has officially approved the model for production.

Tesla has a track record of delays and even cancellations in product development. In 2017, Tesla high-profilely released concept cars for the Roadster supercar and the Semi heavy truck, but to this day, the Roadster has not entered production, and the Semi has failed to achieve large-scale production.

Cybercab Progress: Robotaxi Commercialization Still Faces Obstacles

As rumors of the revived affordable car surface, Tesla's robotaxi plan also faces many uncertainties.

Tesla has publicly stated that it plans to start production this month of the Cybercab, a two-door autonomous model—which first debuted as a concept car in 2024 and is not equipped with pedals or a steering wheel. However, it remains unclear when the vehicle will officially go on sale or be included in Tesla's operating taxi fleet. A spokesperson for the National Highway Traffic Safety Administration (NHTSA) stated that Tesla has not yet applied for the federal exemptions required to sell vehicles without steering wheels and pedals.

Currently, Tesla operates only a small number of robotaxis in Austin, Texas, and many of these vehicles still have human safety supervisors sitting in the passenger seat.

Tesla's market capitalization is approximately $1.3 trillion, far exceeding valuation levels supported by its financial fundamentals. Investors approved a compensation package last year granting Musk Tesla stock worth up to $1 trillion, tied to a series of product and financial targets.