Tesla is building a new compact SUV priced under $34,000, according to Reuters. The vehicle would measure about 4.28 meters long and use a smaller battery pack with a single motor to cut costs. Production would start in Shanghai, with possible expansion to the US and Europe later. But the project is still in early development, so don't expect to see it on roads anytime soon, certainly not in 2026. Musk killed this same affordable EV program in 2024. He dismissed human-driven cars as "pointless" and "silly" while betting everything on Robotaxi, ignoring internal analyses from his own executives who had numbers showing the autonomous business would lose money.
That bet looks rough two years later. Tesla's Robotaxi service in Austin runs about 8 unsupervised Model Ys in a limited area and has reported 15 crashes to NHTSA. California's regulator confirmed Tesla isn't operating an autonomous service in the state. Meanwhile, deliveries dropped from a peak of 1.81 million in 2023 to 1.636 million in 2025. Q1 2026 came in at just 358,000 units, missing analyst estimates again.
Now Musk is quietly reversing course.
The new vehicle is described internally as offering a "driverless but human-driven option," basically an admission that full autonomy remains distant. That's what his own executives told him in 2024 before he shut them down. Tesla filled the gap with stripped-down Model 3 and Y variants starting at $37,000 and $40,000, far from the original $25,000 target. Chinese competitors like BYD and Xiaomi aren't waiting around, pushing affordable EVs with fast charging and competitive range at prices Tesla still can't match.
There's also a manufacturing catch. Tesla's radical "Unboxed" assembly process, designed to cut production costs by 50%, was supposed to debut at Gigafactory Mexico. That factory is now paused due to trade tensions. Building the new SUV in Shanghai means Tesla likely can't use the full Unboxed process there, relying instead on existing methods with incremental improvements. Even if this project is real, Tesla gave up a massive head start in affordable EVs to chase an autonomous dream that hasn't materialized.
Making up that lost ground will take years. If it's even possible.