Inside Tesla’s Plan to Build a Cheaper, Compact EV to Boost Sales
In Focus
- Tesla plans to produce the Compact EV in its Shanghai Factory
- The new EV will be priced much lower than Model 3 sedan
- The smaller EV will be 4.28 meters (14 feet) long
Tesla is reportedly making a new, cheaper, compact SUV. Sources close to the company said the EV maker has already reached out to suppliers to discuss the plan for the SUV, specifications, and manufacturing process. A report by Reuters showed that Tesla’s cheaper electric vehicle will be a new model, and not a variant of the existing Model Y or Model 3.
How Big is Tesla’s Compact SUV?
Sources familiar with the project say Tesla’s smaller EV will be 4.28 meters (14 feet) long, which is much shorter than the 15.7 feet long Model Y SUV. The new vehicle will likely be produced in Tesla’s Shanghai factory in China. The company is reportedly planning to expand its production to Europe and the U.S.
Tesla is looking to offer its new compact EV at a much lower price compared to Model 3 sedan, whose price starts at around $37,000 in the U.S. and $34,000 in China. The EV maker plans to use a smaller battery in the new EV to reduce production cost. This means the Tesla compact electric SUV will have a shorter driving range compared to Model Y.
Additionally, Tesla’s cheaper Model Y variant could come with a single electric motor, instead of two. The vehicle is also expected to be much lighter, with sources close to the EV maker saying it would weigh about 1.5 metric tons.
How Does a Cheaper SUV Fit into Tesla’s Strategy?
Tesla is introducing a cheaper EV after CEO Elon Musk decided to do away with the low-cost EV project back in 2024 and focus on humanoid robots and robotaxis. The move concerns whether Tesla is resuming mass-market production of EVs.
It also raises the question whether Tesla’s smaller SUV aligns with the company’s vision for self-driving vehicles. Some sources said the SUV model could serve both purposes. Tesla is working on producing driverless EV models with a human-driven option.
As Tesla pursues full autonomy across its lineup, it acknowledges that most global markets are yet to adopt or approve driverless vehicles. By producing vehicles that offer both options, the company could increase sales and fully utilize its production capacity.
Currently, Tesla runs robotaxi service is limited to Austin, Texas where most of its vehicles have human safety monitors. As Tesla pushes toward a driverless future, analysts expect the company’s EV sales to drop in Q3 2026.
Future Outlook
In recent years, Tesla has highlighted its plan for robotaxis and humanoid robots to sustain the company’s lofty market valuation. The company has a market capitalization of about $1.3 trillion, which is much higher than its tech peers. Last year, investors approved a compensation package that could grant Musk up to $1 trillion in Tesla stock. The pay package is linked to realization of specific product and financial targets.
