Tesla Reportedly Developing Compact Electric SUV in China
According to four individuals familiar with the matter, Tesla is currently in the early development stages of a brand-new, more compact and affordable electric SUV. This model will not be a variant of the existing Model 3 or Model Y, representing a distinct addition to Tesla's lineup. The electric vehicle manufacturer has recently engaged with suppliers to discuss manufacturing processes and component specifications for this project.
Initial Production in China with Global Expansion Plans
Three sources have indicated that the compact SUV will initially be produced in China, with one suggesting Tesla aims to expand production to the United States and Europe later. The vehicle is expected to measure approximately 4.28 metres (about 14 feet) in length, making it significantly shorter than Tesla's top-selling Model Y SUV, which measures around 15.7 feet long.
This development follows Chief Executive Elon Musk's decision in 2024 to scrap a highly anticipated low-cost EV project, often referred to as the "Model 2" by fans and investors. Instead, the company pivoted to focus on robotaxis and humanoid robots. A key question now is whether this new compact SUV signals a strategic shift back towards mass-market human-driven electric vehicles or whether it aligns more closely with Tesla's vision for fully autonomous vehicles.
Dual-Purpose Design and Cost-Saving Measures
According to one person familiar with the new-vehicle project and a Tesla employee with knowledge of the company's current product philosophy, such a model could potentially serve both purposes. The Tesla employee, while declining to confirm or deny specific vehicle details, stated that the automaker now aims to build models that would be driverless but offer a human-driven option. This approach acknowledges that many global markets will not see meaningful adoption or regulatory acceptance of driverless vehicles for years.
Preserving the option to build a particular model with or without driving controls could enable more sales and help ensure Tesla can maintain its car factories running near capacity. Two sources revealed that Tesla aims to offer the new vehicle at a substantially lower price than its entry-level Model 3 sedan, which starts at $34,000 in China and about $37,000 in the United States.
To achieve cost savings, Tesla plans to use a smaller battery, resulting in a shorter driving range compared to the Model Y's 306 to 327 miles. Additionally, the automaker would offer a single electric motor instead of two, which is currently a performance option on existing Tesla models. The company also aims to make the car much lighter, targeting approximately 1.5 metric tons compared to about two tons for the Model Y.
Production Timeline and Historical Context
Three of the people familiar with the project confirmed that the new model would be produced at Tesla's Shanghai factory. While the exact timing remains unclear, production is unlikely to begin this year. The four individuals emphasized that the project remains in an early development stage, and Reuters could not determine whether Tesla has given the green light for the car's production.
Tesla has a history of starting development on products that end up significantly delayed or canceled. For instance, the company showed concept vehicles for a Roadster supercar and a Semi freight truck in 2017 but has yet to produce the sports car or mass-produce the Semi.
Strategic Shifts and Market Challenges
For years after Tesla's founding in 2008, Musk emphasized that the company's real mission was to produce affordable, mass-market electric vehicles crucial for combating the climate crisis. However, start-and-stop efforts to deliver on that goal have so far fallen short. Beginning in 2020, Musk stated Tesla aimed to sell 20 million vehicles annually by the end of the decade, nearly double that of Toyota, the current global sales leader.
After scrapping the Model 2 in 2024, Musk and other Tesla executives described vague plans for new, "more affordable" EVs. When these vehicles arrived last fall, they were merely stripped-down versions of the current Model 3 and Y offered in new "standard" trim levels at only modest discounts. U.S. prices of $36,990 for the Model 3 Standard and $39,990 for the Model Y struck some investors as too high to attract a new class of buyers and have not yet made a significant difference in Tesla's overall sales.
As Tesla chases a driverless future, some analysts predict a third consecutive year of declining sales for the traditional electric vehicles that provide the vast majority of its revenue. Currently, Tesla operates a small number of robotaxis only in Austin, Texas, many with human safety monitors in the passenger seat.
Autonomous Vehicle Ambitions and Investor Expectations
Publicly, Musk and Tesla have continued to emphasize plans for robotaxis and humanoid robots, which has been effective in sustaining Tesla's eye-popping stock-market value. The company's market capitalization is approximately $1.3 trillion, far outpacing its financial fundamentals even when compared with high-flying tech peers. Investors last year approved a compensation package granting Musk up to $1 trillion in Tesla stock tied to a series of product and financial goals.
The automaker now says it plans to start production this month of a two-door Cybercab robotaxi, first unveiled as a concept vehicle in 2024, with no pedals or steering wheel. However, it remains unclear when the car will go on sale or see use in a Tesla-operated robotaxi fleet. Notably, Tesla has not sought a federal exemption required to sell a vehicle with no steering wheel or pedals, according to a spokesperson for the National Highway Traffic Safety Administration.
Tesla did not respond to requests for comment about plans for the new compact SUV. A former Tesla manager noted that an all-new cheaper traditional car would represent a significant departure from the company's philosophy through mid-2025, when Tesla had dropped efforts to mass-produce an entry-level car in favor of robotaxis as the key to lowering costs per mile for riders and car owners.
