Tesla restarts affordable car plan? Reports say it is developing a small electric SUV, planning to produce it in China.

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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 shift back toward the mass market.

According to a Reuters report on Thursday, four sources revealed that Tesla has recently proactively approached suppliers to discuss manufacturing processes and component specifications for this compact SUV. This model will be a completely new vehicle, not a derivative of the existing Model 3 or Model Y. Three sources stated, the vehicle is planned to be produced in China, and one source said Tesla hopes to expand production capacity to the U.S. and Europe.

In 2024, Musk halted the highly anticipated low-cost EV project and instead focused company resources on driverless taxis and humanoid robots. The restart of the affordable vehicle’s development has sparked a new round of speculation in the market regarding Tesla’s strategic direction—whether it is returning to the mass market of human-driven vehicles or still aiming for fully autonomous driving. Meanwhile, some analysts predict Tesla's traditional EV sales will decline for a third consecutive year, adding a more urgent commercial rationale to this project.

Smaller, Lighter, Cheaper

According to two sources, this compact SUV has a body length of about 4.28 meters, significantly shorter than Tesla’s best-selling Model Y, which is about 4.79 meters long.

For cost control, two sources said Tesla plans to price the new car below the entry-level Model 3—which starts at about $34,000 in China and $37,000 in the U.S.

To keep costs down, Tesla plans to use a smaller capacity battery, meaning the range will be below Model Y’s current 306–327 mile range. In addition, the new model will have a single motor instead of dual motors and significantly reduce body weight, targeting around 1.5 metric tons, whereas Model Y weighs about 2 metric tons.

Three sources stated the new car will be produced at Tesla’s Shanghai factory, but the timeline remains unclear, and it is unlikely to start production within this year.

Dilemma Between Autonomous Driving and Mass Market

There is still uncertainty about which strategic goal this new model will serve.

One source familiar with the project and one Tesla insider familiar with the company’s current product philosophy said the new model may cover both purposes. The insider declined to confirm or deny details of the specific model but said Tesla’s overall direction is to create cars capable of autonomous driving while retaining the option for manual driving.

The employee explained that although Tesla is committed to pushing full autonomous driving across all product lines, the company realizes that many global markets will find it difficult to achieve widespread adoption of autonomous vehicles in the coming years and regulatory approval is equally distant. Keeping the manual driving option helps expand sales volume and ensures full factory utilization.

A former Tesla manager argued that launching a new, affordable traditional car would be a major deviation from the company’s strategic path since mid-2025—when Tesla abandoned plans for large-scale production of entry-level models and instead positioned driverless taxis as the core path to reducing per-mile travel costs.

Recurring Dream of Affordable Cars

Tesla’s history in affordable EVs is full of twists and turns.

Since its start in 2008 with luxury EVs, Musk has repeatedly stated publicly that Tesla’s true mission is to produce affordable EVs for the mass market.

Since 2020, he claimed Tesla’s goal is annual sales of 20 million by the end of this decade, aggressively promoting a $25,000 EV plan nicknamed "Model 2," seen as the engine for explosive sales growth.

However, in 2024, Tesla reportedly abandoned the Model 2 plan, retaining only development of driverless taxis on the same platform. At the time, Musk declared producing a $25,000 car for human drivers would be "meaningless" and "stupid," since Tesla was about to launch autonomous vehicles.

Afterward, Tesla rolled out so-called "more affordable" new models, but in reality, these were just stripped-down "standard" versions of the existing Model 3 and Model Y, priced at $36,990 and $39,990 in the U.S. respectively, with limited discounts. They failed to draw in new customers, and had only a minimal impact on overall sales.

All four sources emphasized that the small SUV project mentioned above is still in the early stages of development, and it is not possible to confirm whether Tesla has officially approved production of the model.

Tesla has a history of delaying or canceling product development. In 2017, Tesla launched the Roadster supercar and Semi heavy truck concept vehicles with much fanfare, but to this day, the Roadster is still not in mass production and the Semi is not scaled up for large-scale production.

Cybercab Progress: Commercialization of Autonomous Vehicles Still Faces Obstacles

Amid rumors of a renewed affordable car, Tesla’s autonomous taxi plans also face much uncertainty.

Tesla has publicly stated it plans to begin production of two autonomous models, Cybercab, this month—the concept was first revealed in 2024 and is not equipped with pedals or a steering wheel. However, when the car will go on sale or be included in Tesla’s taxi fleet remains unclear. A spokesperson for the U.S. National Highway Traffic Safety Administration said Tesla has not applied for the federal exemption needed to sell vehicles without steering wheels or pedals.

Currently, Tesla operates a small number of autonomous taxis in Austin, Texas, and many of these still have human safety supervisors in the passenger seat.

Tesla’s market capitalization is about $1.3 trillion, far exceeding what its financial fundamentals can justify. Last year, investors approved a compensation plan granting Musk Tesla stock worth up to $1 trillion, tied to a series of product and financial targets.

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