Tesla is working on an all-new compact electric SUV that would be significantly cheaper than its current lineup, according to four people with direct knowledge of the matter who spoke to Reuters. The development marks a potentially significant turn in the automaker's strategy as it navigates declining sales and an ambitious pivot toward autonomous vehicles.

Supply Chain Outreach Signals Early Progress

According to Reuters' sources, Tesla has been in active contact with suppliers in recent weeks to discuss the specifications and manufacturing details of the planned compact SUV. The vehicle would not be a derivative or variant of the existing Model 3 or Model Y — it would be an entirely new model, the four people told Reuters.

Two of the sources told Reuters the car would measure approximately 4.28 meters (about 14 feet) in length — a notable reduction compared to the Model Y, Tesla's best-selling vehicle, which stretches roughly 15.7 feet. Three of the people told Reuters the new SUV would be manufactured at Tesla's Shanghai factory, while one source indicated Tesla also has aspirations to expand production to facilities in the United States and Europe.

Reuters could not confirm whether Tesla has given formal approval for the vehicle's production. The company did not respond to Reuters' requests for comment.

Pricing and Specifications

Two sources who spoke to Reuters said the new SUV would be priced substantially below Tesla's entry-level Model 3 sedan, which currently starts at $34,000 in China and around $37,000 in the United States. To keep costs down, Reuters' sources said Tesla plans to fit the vehicle with a smaller battery, which would result in a driving range shorter than the 306 to 327 miles currently offered on the Model Y.

One of the sources told Reuters that Tesla also intends to use a single electric motor rather than the dual-motor configuration available as a performance option on its existing models. The same person said the company wants to make the car meaningfully lighter — targeting around 1.5 metric tons, compared to approximately two tons for the Model Y.

The new model raises a broader strategic question that Reuters highlights: does this vehicle represent a genuine return to Tesla's long-stated goal of affordable, mass-market EVs, or is it primarily a vehicle designed for full autonomy?

According to one of the people familiar with the project, as well as a Tesla employee with knowledge of the company's current product philosophy, the answer may be both. The Tesla employee — who declined to confirm or deny the existence of any specific vehicle — told Reuters that the company now broadly aims to design models that are capable of driverless operation but also offer a conventional human-driven option.

The reasoning, that person explained to Reuters, is pragmatic: while Tesla is pursuing full autonomy across its lineup, many markets around the world are unlikely to see meaningful regulatory acceptance of driverless vehicles for years. Designing vehicles that can operate either way would allow Tesla to serve more markets and keep its factories running at closer to full capacity, the person said.

Tesla's History on Low Cost EVs

Reuters notes that Tesla's history on low-cost vehicles is one of repeated ambition and repeated delay. After launching as a luxury automaker in 2008, Tesla's stated mission for years — articulated repeatedly by CEO Elon Musk — was to ultimately produce affordable electric vehicles accessible to mass-market consumers. Musk spoke of selling 20 million vehicles annually by the end of the decade, a figure nearly double Toyota's current global output.

For years, investors and enthusiasts anticipated the so-called "Model 2," a $25,000 EV widely expected to drive a new wave of sales growth. But in 2024, Reuters reported that Tesla had abandoned those plans, pivoting instead to a focus on robotaxis and humanoid robots. Later that same year, Musk publicly described a $25,000 human-driven EV as "pointless" and "silly," arguing that Tesla's imminent driverless technology would make it unnecessary.

When Tesla did eventually introduce more affordable vehicles last fall, they were stripped-down "Standard" trims of the existing Model 3 and Model Y — priced at $36,990 and $39,990 respectively in the United States. Reuters notes that those prices have struck some investors as insufficient to attract a meaningfully new segment of buyers, and they have not significantly moved Tesla's overall sales numbers.

The Robotaxi Timeline and Regulatory Hurdles

Even as Tesla pursues this potential new SUV, Reuters notes that significant uncertainty surrounds its flagship autonomous vehicle project. The company has said it plans to begin production this month of the Cybercab, a two-door robotaxi without a steering wheel or pedals that was unveiled as a concept in 2024. However, a spokesperson for the National Highway Traffic Safety Administration told Reuters that Tesla has not yet applied for the federal exemption required to legally sell a vehicle with no manual driving controls.

Tesla currently operates a small number of robotaxis only in Austin, Texas, with many still carrying human safety monitors in the passenger seat, Reuters notes.

Production Timeline 

The four people who spoke to Reuters said that the new compact SUV remains in an early stage of development, and production is unlikely to begin this year. Reuters notes that Tesla has a well-documented history of announcing or beginning development of vehicles that face long delays or are ultimately canceled — the Roadster supercar and Semi truck, both unveiled in 2017, are still not in mass production.

As Reuters also notes, some analysts now predict a third consecutive year of declining sales for Tesla's conventional EVs — the products that still account for the vast majority of its revenue — even as its stock market valuation of approximately $1.3 trillion continues to reflect investor confidence in its autonomous and robotics ambitions.