Tesla is engineering an all-new, smaller and lower-cost electric sport-utility vehicle, four people familiar with the project said. In recent weeks, the automaker approached suppliers to discuss manufacturing methods and component specifications for a compact SUV that would be a fresh design rather than a derivative of the existing Model 3 or Model Y, the people said.
Those briefed on the work said conversations with suppliers covered production steps and part requirements. Three of the sources said Tesla intends to build the compact SUV at its Shanghai factory, while a fourth person said the company also envisions later production in the United States and Europe. The project is described by the sources as being in an early development stage, and it is not clear whether Tesla has formally authorized production.
Dimensions, weight and configuration
Two sources gave a specific target length for the car: 4.28 meters, which is about 14 feet. That would make it materially shorter than Tesla’s top-selling Model Y, which is roughly 15.7 feet long. Individuals familiar with the planning said Tesla aims to reduce mass, targeting a vehicle weight of about 1.5 metric tons versus around two tons for the Model Y.
To lower costs, the sources said, Tesla plans on using a smaller battery pack that would result in a shorter driving range than the Model Y’s current 306 to 327 miles. The company would also offer a single electric motor configuration rather than the dual-motor setups available on some existing models. Those cost-saving choices are intended to allow the car to be sold at a substantially lower price than Tesla’s entry-level Model 3 sedan, which starts at $34,000 in China and roughly $37,000 in the United States, according to the sources.
How the new model fits with Tesla’s autonomy ambitions
The compact SUV effort comes after Chief Executive Elon Musk halted a much-anticipated low-cost EV program in 2024 and steered the company toward developing robotaxis and humanoid robots. Observers view the new project as raising a central question: whether Tesla is returning to a focus on mass-market, human-driven cars or pursuing a design that meshes with its autonomous vehicle ambitions.
One person familiar with the vehicle program and a Tesla employee said the model could be engineered to serve both purposes. The Tesla employee would not confirm details of any particular vehicle but described the company’s product philosophy as aiming to produce models that could operate without a human driver while retaining an option for human control. The employee said Tesla recognizes that broad market adoption and regulatory clearance for driverless cars will not occur in many regions for years, and keeping a human-driven configuration available could expand the pool of potential buyers and help maintain factory throughput.
Early stage development and historical context
The four people who provided details emphasized that Tesla’s work on the compact SUV is in a preliminary phase. Reuters could not determine whether Tesla has granted final approval to move forward with the car’s production. The company has previously started development on vehicles that were later delayed or canceled; concept introductions for other models have not always resulted in immediate commercial launches.
After the abandonment in 2024 of a previously promoted low-cost EV effort, often discussed in investor and fan circles as a potential $25,000 car, Tesla’s public statements and product releases shifted. Executives described plans for “more affordable” models in broad terms, and when lower-priced versions reached the market last year, they were simplified trims of existing Model 3 and Model Y lines offered at only modest discounts. U.S. retail prices posted for those pared-back versions were $36,990 for the Model 3 Standard and $39,990 for the Model Y, a reduction that some investors considered insufficient to break into a new customer segment and that so far has not moved the company’s overall sales trajectory materially.
Pricing, range and performance trade-offs
Two of the individuals said Tesla aims for the compact SUV to cost significantly less than its current entry-level sedan, in part through the smaller battery and the single-motor option. The compromise in battery size would mean a reduced range relative to the Model Y’s 306 to 327 miles. The shift to a lighter vehicle and fewer powertrain components is expected to drive down production costs, according to the sources, though specific target price points beyond being substantially lower than the Model 3 base price were not provided by the people briefed on the project.
Production timing and location
Three of the sources said the compact SUV would be produced at Tesla’s Shanghai plant. While the timing remains uncertain, the people said production is unlikely to begin this year. One of the sources also said Tesla hopes to extend production to facilities in the United States and Europe at a later stage, but no schedule was offered and no production approvals were confirmed.
Robotaxis, the Cybercab and market positioning
Tesla has publicly prioritized robotaxes and humanoid robots while maintaining ambitious valuation metrics in the public markets. The company operates a limited number of robotaxis in Austin, Texas, with many of those vehicles staffed by human safety monitors in the passenger seat. Separately, the automaker said it plans to begin production this month of a two-door Cybercab robotaxi that was shown in concept form in 2024; that vehicle has no pedals or steering wheel. It remains unclear when that vehicle will be available for sale or when it will be deployed in a Tesla-operated robotaxi fleet, and the automaker has not sought a federal exemption that would be required to sell a vehicle without steering wheel or pedals, a National Highway Traffic Safety Administration spokesperson said.
Meanwhile, some analysts tracking the company have warned that Tesla could see a third consecutive year of declining sales in the conventional electric vehicles that currently generate most of its revenue. The company’s large market capitalization - roughly $1.3 trillion, as cited by the people familiar with the matter - and an investor-approved compensation package that could award up to $1 trillion in Tesla stock tied to product and financial milestones underscore the contrast between market valuation and short-term sales performance.
Uncertainties and next steps
The sources stressed that the compact SUV remains an early-stage project. Tesla did not respond to requests for comment about plans for a new vehicle. Given the company’s pattern of initiating product development without guaranteeing eventual production, it is not possible to say whether the compact SUV will reach showrooms or when production might start. The planning conversations with suppliers indicate design and manufacturing work is underway, but no definitive approvals or launch schedules were confirmed by the people who spoke about the effort.
As the company juggles a declared aim of achieving full autonomy with the commercial realities of markets and regulation, keeping the option for a human-driven configuration could allow broader sales across jurisdictions where driverless cars are not yet permitted or widely accepted, according to one person familiar with Tesla’s product thinking. That approach would allow the vehicle to target both a future autonomous use case and conventional buyers, while helping to sustain factory utilization rates if the design is approved for production.
Reporting on this project is based on interviews with four people briefed on Tesla’s planning and a Tesla employee who described the company’s general product approach. The project remains in early stages and no final production authorization was confirmed by those sources.