Tesla is reportedly developing an all-new smaller and cheaper electric SUV , two years after Elon Musk decided to cancel the company's affordable electric vehicle program. According to Reuters , the new compact SUV will be produced at Tesla's Shanghai factory and will have a significantly lower price than the Model 3 in China and the United States.
The new vehicle will be 4.28 meters long, making it significantly shorter than the 4.75 meters of the Model Y, and will weigh about 1.5 metric tons.
To achieve a lower price, Tesla plans to use a smaller battery, resulting in a shorter range than the Model Y. It is also expected to have a single electric motor instead of the dual-motor setup available in current models. Reuters sources describe the vehicle as an entirely new one, not a variant of the existing Model 3 or Model Y.
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Three of the four sources told Reuters that production would be based in Shanghai, with one adding that Tesla plans to expand production to the US and Europe. The project is still in the early stages of development and it has not been confirmed whether Tesla has given the green light for production. Production is unlikely to start this year.
This report is significant because it represents a sharp shift in Tesla's plans. In 2024, Musk had canceled the $25,000 electric car, codenamed NV9, to focus on the Robotaxi program.
At the time, Musk said it would be “pointless” and “foolish” to build affordable electric vehicles for human drivers because Tesla would soon have fully autonomous vehicles that would make traditional car ownership obsolete. This decision went against the recommendations of nearly every senior Tesla executive. Musk dismissed an internal analysis by the heads of vehicle programs, engineering, business development, and design that showed the Robotaxi business would lose money and that Tesla should prioritize affordable electric vehicles.
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When asked about new models in recent months, Tesla leadership told people to think of Tesla as a “transportation as a service” company, implying that new vehicles with human drivers were not a priority.
A Tesla employee told Reuters that the new vehicle reflects a dual-purpose approach: the car would be "driverless but offer the option of driving."
This wording suggests that Tesla is finally acknowledging that the fully autonomous future that Musk has been promising since 2016 is not coming anytime soon. “Robotaxi” service in Austin, which launched in June 2025, still operates with only a few vehicles — about 8 unattended Model Ys — in a limited geographic area.
The service has reported 15 crash incidents to NHTSA, and the California regulator has confirmed that Tesla “does not operate an autonomous vehicle service” in the state.
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For now, though, we should treat the news of the new budget SUV as a rumor. 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 nowhere near, especially in international markets where regulatory frameworks for driverless vehicles are not in place.
