Tesla is quietly developing a new compact SUV priced below the Model 3, according to four sources who spoke to Reuters. The 4.28-meter vehicle would use a smaller battery and single motor to hit a lower price point, with production based in Shanghai. This is a sharp reversal from Elon Musk's 2024 decision to kill the $25,000 Model 2 program. At the time, Musk called building affordable cars for human drivers "pointless" because fully autonomous vehicles would soon make car ownership obsolete.
Two years later, that autonomous future remains distant. Tesla's Robotaxi service in Austin operates roughly 8 unsupervised Model Ys in a limited geofenced area and has reported 15 crash incidents to NHTSA. California's regulator confirmed Tesla is "not operating an autonomous vehicle service" in the state. Meanwhile, Tesla's sales peaked at 1.81 million deliveries in 2023 and have declined since, falling to 1.636 million in 2025. Q1 2026 deliveries came in at just 358,000, missing analyst expectations again.
Musk overruled virtually every senior executive to kill the affordable EV program. Internal analysis from heads of vehicle programs, engineering, business development, and design showed the Robotaxi business would lose money and that Tesla should prioritize the affordable car instead. He ignored the data.
One Tesla employee told Reuters the new vehicle reflects a "dual-purpose approach," describing it as "driverless but offer a human-driven option." That framing is telling. It's what Tesla's own executives were telling Musk in 2024 before he shut them down.
If the project is real, it's in early development and unlikely to reach production before 2027. That's three years after the Model 2 was supposed to launch. Competitors like BYD and Xiaomi aren't waiting. They're already eating Tesla's lunch with capable EVs at prices Tesla can't match today. Tesla gave up a massive head start in affordable EVs to chase an autonomy dream, and recovering that lost ground will take years.
If it's even possible.