Tesla is reportedly developing an all-new smaller, cheaper electric SUV — two years after CEO Elon Musk killed the company’s affordable EV program and called building cars for human drivers “pointless.”
Reuters reports that four people familiar with the matter say the new compact SUV would be produced at Tesla’s Shanghai factory, priced substantially below the Model 3’s $34,000 starting price in China and $37,000 in the US.
A smaller, cheaper Tesla
The new vehicle would measure 4.28 meters (about 14 feet) in length, making it significantly shorter than the Model Y’s 4.75 meters (15.7 feet). It would weigh approximately 1.5 metric tons compared to the Model Y’s 2 metric tons.
To hit a lower price point, Tesla plans to use a smaller battery pack — resulting in less range than the Model Y’s 306-to-327-mile rating — and a single electric motor rather than the dual-motor setup available in current models. Reuters‘ sources describe it as an entirely new vehicle, not a variant of the existing Model 3 or Model Y.
Three of Reuters’ four sources said production would be based in Shanghai, with one adding that Tesla aims to eventually expand production to the US and Europe. The project remains in early development, and Reuters could not confirm whether Tesla has given the green light for production. Production is unlikely to begin in 2026.
Tesla did not respond to Reuters’ request for comment.
Two years of wasted time
This report is significant because it represents a sharp reversal from Musk’s 2024 decision to kill the $25,000 electric car, codenamed NV9, in favor of the Robotaxi program. At the time, Musk said it would be “pointless” and “silly” to build affordable EVs for human drivers because Tesla would soon have fully autonomous vehicles making traditional car ownership obsolete.
That decision went against the recommendations of virtually every senior Tesla executive. As we reported, Musk shut down an internal analysis from the heads of vehicle programs, engineering, business development, and design that showed the Robotaxi business would lose money and that Tesla should prioritize the affordable EV instead.
Instead, Musk replaced the new affordable EV program with stripped-down versions of the Model 3 and Model Y with fewer features and cheaper materials. Those vehicles were repeatedly delayed and, when they finally launched in late 2025, started at $37,000 for the Model 3 and $40,000 for the Model Y — far from the $25,000 price target of the original program.
When asked about new models in recent months, Tesla leadership has told people to think of Tesla as a “transportation as a service” company — implying that new human-driven vehicles weren’t a priority.
Meanwhile, Tesla’s sales have been on a sustained decline. The company peaked at 1.81 million deliveries in 2023, dropped to 1.79 million in 2024, and fell further to 1.636 million in 2025. Q1 2026 deliveries came in at just 358,000, missing analyst expectations again.
The Robotaxi reality check
One Tesla employee told Reuters that the new vehicle reflects a dual-purpose approach: the car would be “driverless but offer a human-driven option.” That framing is telling — it suggests Tesla is finally acknowledging that the fully autonomous future Musk has been promising since 2016 isn’t arriving anytime soon.
Tesla’s “Robotaxi” service in Austin, which launched in June 2025, still operates with only a handful of vehicles — roughly 8 unsupervised Model Ys — in a limited geofence. The service has reported 15 crash incidents to NHTSA, and California’s regulator has confirmed Tesla is “not operating an autonomous vehicle service” in the state.
Electrek’s Take
Top comment by stetrain
Last time they said in their official earnings reports that they were developing new more affordable models it turned out to just be the Model 3/Y with cloth seats and other features removed.
We have to treat this as a rumor for now since it would represent a significant departure from the strategy Tesla has pursued under Musk over the past two years. But if true, it would be the right move.
Tesla fell two years behind on an affordable EV program for no reason. Musk killed the Model 2, overruled his own executives who had the data showing Robotaxi economics wouldn’t work, and bet the company on a fully autonomous future that still hasn’t materialized in any meaningful way. Two years later, Tesla has about 10 unsupervised cars driving around a few square miles of Austin while competitors like BYD are eating its lunch in the global market with affordable EVs.
If Tesla is indeed developing a new compact SUV for the sub-$34,000 segment, it likely represents a very recent decision — possibly driven by the reality that autonomy is not around the corner, especially in the many international markets where regulatory frameworks for driverless vehicles barely exist. The internal acknowledgment that vehicles need to offer “a human-driven option” is essentially what Tesla’s own executives were telling Musk in 2024, before he shut them down.
The problem is that even if this project is real, it’s in early development and unlikely to reach production before 2027 at the earliest. That’s three years after the Model 2 was supposed to launch. Tesla gave up an enormous head start in the affordable EV segment to chase a Robotaxi dream, and it’s going to take years to make up that lost ground — if it even can.
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