Rumor mill: Tesla is developing an all-new compact electric SUV that will be smaller, lighter, and cheaper than its current Model 3 and Model Y lineup, according to four people familiar with the matter. The project, which sources say is still in its early stages, involves a vehicle that is not a variant of Tesla's existing models but an entirely new design. In recent weeks, Tesla has reportedly approached suppliers to discuss manufacturing processes and specifications for key components of the compact SUV.
Three of the sources said the new model would be produced in China, while one added that Tesla also aims to expand production to the United States and Europe. Two sources said the vehicle would measure about 4.28 meters (14.0 feet) in length, making it significantly shorter than the Model Y, which is roughly 15.7 feet long.
Two people familiar with the project said Tesla is targeting a price well below its entry-level Model 3 sedan, which starts at about $34,000 in China and around $37,000 in the US. They added that the company plans to cut costs by using a smaller battery, which would reduce range to approximately 306 to 327 miles – similar to the Model Y's estimated range.
One source said the compact SUV is expected to use a single electric motor, rather than the dual-motor setups offered on many Tesla models today. The company is also targeting a weight of about 1.5 metric tons, compared with roughly two tons for the Model Y.
According to one person familiar with the project and a Tesla employee describing the company's current product philosophy, the vehicle could be designed to support both autonomous and human-driven operation. The employee declined to discuss any specific model but said Tesla's broader goal is to develop cars capable of operating driverlessly while still offering a conventional driving mode.
The person added that, even as Tesla pursues full autonomy, it expects many countries to remain slow to adopt or approve driverless vehicles. In their view, designing vehicles that can be built with or without traditional controls would allow Tesla to adapt to local regulations and demand while keeping its factories fully utilized.
The timing of any production launch for the compact SUV remains unclear, and sources said it is unlikely to begin this year. Reuters could not determine whether Tesla has formally approved production of the vehicle.
Tesla did not respond to Reuters' requests for comment about the new model. The company has previously launched development programs that were later delayed or stalled, including a Roadster sports car and a semi-truck unveiled in 2017, both of which have yet to reach mass production.
The compact SUV effort comes after Elon Musk scrapped a long-planned low-cost EV project in 2024, often referred to by investors as "Model 2," and shifted more of Tesla's focus toward robotaxis and humanoid robots.
A former Tesla manager told Reuters that introducing an all-new, cheaper conventional vehicle would mark a notable departure from Tesla's approach through mid-2025, when the company had dropped plans to mass-produce an entry-level model and instead positioned robotaxis as the primary way to reduce cost per mile for riders and operators.
After the Model 2 plans were abandoned, Musk and other executives spoke about "more affordable" EVs in general terms. When new offerings arrived last fall, they were stripped-down versions of the Model 3 and Model Y in Standard trims, with only modest price cuts that some investors viewed as insufficient to open a new mass market.
Analysts now expect Tesla's traditional EV sales to decline for a third consecutive year, even as the company advances its robotaxi strategy. Tesla currently operates a small number of robotaxis in Austin, Texas, many of which include human safety monitors in the front seat.
Taken together, the details suggest Tesla is testing how far it can move toward a cheaper, more flexible vehicle architecture that can support both human drivers and future autonomous services, without abandoning its long-term technology roadmap.