Tesla to make a smaller cheaper EV: Same plan cancelled 3 times in last 5 years?

As Tesla struggles to capture a share of the Indian EV market, there are talks going on that the company is planning to launch a more affordable electric car. As per a report by Reuters, the company is thinking of manufacturing a compact, human driven electric car that will be even cheaper than Tesla's Model 3.

The recent plan, though it seems like a necessity of the time, is filled with skepticism based on the company’s past behaviour and decision patterns. Let’s take a clearer picture:

Tesla’s past plans to manufacture a budget electric car

The way Tesla has dealt with its plans for developing a budget electric vehicle over the past few years can be described as a strategy of announcing, abandoning, and reframing.

The idea to introduce a cheaper human driven electric car was introduced at the 2020 Battery Day event, when Elon Musk promised a $25,000 fully autonomous vehicle to be delivered within 3 years, positioning it as a key step toward mass market expansion. However, by early 2022, Musk stated that Tesla had too much on its plate, and the plan was shelved.

Later in 2022, during an earnings call, the concept resurfaced through references to a next generation, lower cost platform that would be about half the cost of Model 3, implying a round off figure of USD 25,000. Since it was cheaper than the Model 3, the expected car was named the Model 2 project. Finally, in 2024, reports indicated that the dedicated $25K “Model 2” project had been effectively scrapped. At the same time, a significant strategic shift became evident: the company is moving away from developing a cheap car for individual ownership and toward building autonomous platforms designed to operate within a future robotaxi network. In this sense, the idea of affordability was not entirely abandoned, but rather reframed within the logic of autonomy and platform based mobility.

The recent announcement & its background

The recent announcement from Tesla indicates that the company is compelled by market dynamics. The constantly dropping sales figures have raised alarms. In 2023, the company sold approximately 1.81 million vehicles, but by 2024 this number dropped to 1.79 million vehicles, marking a decrease of approximately 1.1%. The number further fell to ~1.64 million vehicles in 2025, recording a drop of about 8.6%. Meanwhile, the company’s competitor BYD recorded a 7.7% YoY growth in 2025 and sold approximately 4.6 million vehicles. This brutal market economics might have pushed Tesla to finally venture into the untouched budget segment.

As per the Reuters report, the company is working on a new smaller, cheaper electric car, likely a compact SUV, not the old “Model 2” people expected. As far as the proposed design model is concerned, it is projected to be about 4.28 meters in length. It will be shorter and better suited for urban environments than the Tesla Model Y, while also being more affordable than the Tesla Model 3, which is currently priced around $37,000. For this purpose, Tesla may opt for an economic design strategy that entails the use of a single-motor system, a compact battery pack, and a lightweight vehicle body construction.

Tesla’s shift from an EV company to a tech-based company

The shift of Tesla from being an EV manufacturer to a tech company is best illustrated by its increased R&D budget allocation. While in 2020 the spending was $1.49 billion, it jumped to $3.97 billion in 2023, then to $4.54 billion in 2024, and finally increased to $6.41 billion in 2025, showing almost a fourfold growth within five years. However, the increase is not just about spending more money on research and development; the change in direction can be seen, as most of the new investment is going toward FSD, Dojo, and robotics projects such as Optimus. The Dojo is a special supercomputer created in-house at Tesla that is supposed to process real-life driving experiences acquired from Tesla cars and use the acquired datasets to train its AI. Meanwhile, Optimus is the name of the humanoid robot that is aimed at performing both manual industrial tasks and household chores.

Another evident trend is Tesla’s expansion and employment practices. While the number of employees at Tesla more than doubled, from 70,757 in 2020 to 140,473 in 2023, the distribution of human resources within the firm has been far from equal. In the past, hiring at Tesla was largely associated with gigafactory expansion and automobile manufacturing; now, more attention is paid to finding people with skills in AI and programming, specifically those who can contribute to the development of Autopilot, machine learning, and the Dojo division. In addition, Tesla has not hired enough new people for manufacturing purposes, nor has it prioritized designing new vehicles, which, according to Elon Musk, were to be superseded by mass-producing existing models in 2024.

What remains to be seen?

It is uncertain, however, whether this time around Tesla will take its promises of affordable EVs seriously and break away from its usual habit of introducing and repurposing them. The issue is: will the newly proposed low-cost car be a true-to-tradition mass-market affordable car for ordinary people, or rather an attempt at scaling down the larger idea of building robotaxis? Considering Elon Musk's previous position on how “pointless” a non-autonomous $25,000 EV would be, the company’s long-term commitment to a traditional budget EV remains unclear.

Another important question is whether Tesla will be able to execute. If they move forward, will they be able to do so at scale and still make profits, given that there are already companies that dominate the market because of their efficient cost structures, such as BYD?

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