Tesla’s upcoming cheaper electric car is basically a stripped-down Model Y

Tesla is preparing to launch a couple of new more affordable electric vehicles and the first one is expected to basically be a stripped-down Model Y, according to a new report from China.

We have been reporting on this new vehicle program from Tesla for a while now.

It came to life just over a year ago as a pivot for Tesla after CEO Elon Musk canceled two cheaper vehicles that Tesla was working on, commonly referred as “the $25,000 Tesla”. Those vehicles were codenamed NV91 and NV92, and they were based on the new vehicle platform that Tesla is now reserving for the Cybercab.

Instead, Musk saw that Tesla’s Model 3 and Model Y production lines were starting to be underutilized as Tesla faced demand issues. Therefore, Tesla canceled the vehicles program based on the new platform and decided to build new vehicles on Model 3/Y platform using the same production lines.

We previously reported that these electric vehicles will likely look very similar to Model 3 and Model Y.

Now, this is being confirmed by a new report coming from 36Kr, a Chinese tech media, about a new Model Y-based vehicle that Tesla is planning to produce at Gigafactory Shanghai. The vehicle is being described as a “lower-priced Model Y” (translated from Chinese):

People familiar with the matter told 36Kr that the new model is a “lower-priced Model Y”. Compared with the current Model Y, the new car’s battery, power and chassis have basically not changed much.

The report references the new version of the Model 3 that Tesla launched in Mexico last year. It’s a regular Model 3, but Tesla removed some features, like the second-row screen, ambient lighting strip, and it uses fabric interior material rather than Tesla’s usual vegan leather.

Starting at the equivalent of $35,000 USD in Mexico, it is about $4,000 cheaper than a regular Model 3.

The report references a “depop”, or more likely “decontent” approach, to the new Model Y-based vehicle:

“It is developed through depop.” People familiar with the matter revealed that depop is a development idea within Tesla, which is to achieve the rapid launch of products by simplifying the configuration while keeping the main functions unchanged.

It sounds similar to what Tesla did with the Model 3 in Mexico.

The 36Kr report has some credibility since its source references the change in codenames, which now use “letters and numbers,” previously reported by Electrek.

According to the report, Tesla is expected to launch the new vehicle in China in the second half of the year, depending on the popularity of the refreshed Model Y in China:

The launch time of these new models will depend on the order performance of the renewed Model Y. If the new Model Y does not perform as expected, Tesla is expected to launch this “cheaper Model Y” in the second half of this year.

The vehicle is also expected to launch in other markets since, as previously reported, Tesla’s Model 3 and Model Y production lines in the US and Germany are also currently being underutilized.

Electrek’s Take

Tesla investors shouldn’t hope for a silver bullet in those new models as they will likely greatly cannibalize Tesla’s existing Model 3/Y sales.

It explains why Tesla is waiting to launch them until it takes advantage of the demand bump from the refreshed Model Y.

I know I’ve been hammering on this for a while, but it was another critical management error from Elon Musk, who thought that Tesla didn’t need a $25,000 model based on the next-gen platform because “self-driving is just around the corner.”

That said, he is correcting a bit for his mistake by finding a way to fully utilize Tesla’s production lines, which have been operating below capacity for a while now.

But I would expect Tesla’s gross margins to tighten even more than they already have over the last two years.