Sources Say Tesla Developing Compact, Lower-Priced Electric SUV

By Zhuzhu Cui, Zhang Yan and Chris Kirkham

*Reuters*

April 9, 2026


Tesla Inc. (TSLA.O) is developing a new compact electric sport utility vehicle that would be smaller and lower-priced than its current models, according to four people familiar with the matter.

The company has recently contacted suppliers to discuss manufacturing processes and specifications for components of the planned compact SUV, which would be an all-new model distinct from variants of the existing Model 3 sedan or Model Y SUV, the sources said.

Three of the sources stated that production of the compact SUV would occur in China, while one indicated plans to expand manufacturing to the United States and Europe. Two sources specified the vehicle's length at 4.28 meters, or approximately 14 feet, compared with the Model Y's length of about 4.75 meters, or 15.7 feet.

This development comes after Tesla Chief Executive Elon Musk canceled a previous low-cost electric vehicle project in 2024, redirecting resources toward robotaxis and humanoid robots. Reuters reported the cancellation at the time based on internal documents and sources; Musk publicly disputed that report, describing it as "lying." Tesla later introduced more affordable versions of its existing Model 3 and Model Y models.

A key uncertainty is whether the compact SUV project indicates a return to emphasizing mass-market vehicles with human drivers or aligns primarily with Tesla's focus on autonomous vehicles. One source familiar with the project and a Tesla employee described the company's current product approach in general terms, without confirming specifics of any new vehicle. The employee stated that Tesla seeks to design models capable of operating without drivers but with the option for human controls.

The employee noted that while Tesla pursues full autonomy across its vehicles, regulatory approval and market adoption of fully driverless cars may take years in many regions. Offering models configurable with or without driving controls could support higher production volumes and factory utilization, the employee said.

Tesla's 2025 vehicle deliveries totaled 1.64 million units, an 8.6% decline from 2024 and the second consecutive annual drop. Some analysts forecast a potential third straight year of declining deliveries in 2026 for Tesla's human-driven electric vehicles, which account for most of its revenue. Others project varying outcomes, including possible sales growth toward double current levels by 2030. Tesla currently operates a limited robotaxi service in Austin, Texas, with human safety monitors in some vehicles.

Tesla did not respond to Reuters' requests for comment on plans for a new vehicle.

The four sources described the compact SUV project as being in early development. Reuters could not confirm whether Tesla has approved it for production.

Tesla has previously announced products that faced significant delays or cancellation. For example, concept versions of a Roadster sports car and a Semi truck were revealed in 2017, but neither has entered full production as of 2026.

Two sources said Tesla targets a price for the new vehicle below that of its entry-level Model 3, which starts at $34,000 in China and about $37,000 in the U.S. Cost savings would come partly from a smaller battery, resulting in reduced driving range compared with the Model Y's 492 to 527 kilometers (306 to 327 miles). One source said the vehicle would feature a single electric motor rather than dual motors, as in some current performance models, and weigh about 1.5 metric tons, versus roughly two metric tons for the Model Y.

Three sources indicated production at Tesla's Shanghai factory. While no firm timeline was provided, the sources said manufacturing is not expected to start in 2026.

Tesla's History with Affordable Electric Vehicle Plans

Since beginning production of higher-priced electric vehicles in 2008, Tesla has repeatedly discussed goals for more affordable, high-volume models. Musk has described such vehicles as essential to broader electric vehicle adoption.

In 2020, Musk projected annual sales of 20 million vehicles by the end of the decade, exceeding Toyota Motor Corp.'s (7203.T) then-leading global volume. A frequently discussed $25,000 electric vehicle, referred to by some as the "Model 2," was seen by observers as central to that target.

Reuters' 2024 reporting, based on documents and sources, indicated Tesla had halted dedicated development of that inexpensive model, opting instead for a robotaxi using a related platform. Musk contested the report's characterization. Chinese competitors including BYD Co. and others had introduced lower-priced electric vehicles by then. Later in 2024, Musk stated that producing a $25,000 human-driven car would be "pointless" given upcoming driverless options.

A former Tesla manager said through mid-2025, the company had prioritized robotaxis over a dedicated entry-level human-driven car to reduce per-mile costs for ridesharing. Following the reported cancellation, Tesla executives outlined plans for "more affordable" vehicles without specifics. In late 2025, the company launched standard-range trims of the Model 3 and Model Y at U.S. prices of $36,990 and $39,990, respectively. These represented modest price reductions from prior entry-level options but have not markedly boosted overall sales volumes, according to company reports.

Status of Tesla's Planned Cybercab Robotaxi

Tesla continues to highlight robotaxis and humanoid robots publicly, contributing to its market capitalization of approximately $1.3 trillion as of April 2026. This valuation exceeds that of many automakers and aligns more closely with select technology companies. In 2025, shareholders approved a compensation package for Musk potentially worth up to $1 trillion in stock, linked to performance milestones.

Tesla has stated plans to begin production this month of its two-door Cybercab robotaxi, unveiled as a concept in 2024 without pedals or a steering wheel. Details on sales timing or deployment in a company-operated fleet remain unspecified. A National Highway Traffic Safety Administration spokesperson confirmed Tesla has not applied for a federal exemption needed to sell vehicles lacking steering wheels or pedals.

The reliance on anonymous sources for core details in this report underscores limitations in verification, as Tesla provided no on-the-record confirmation. Past Reuters reporting on Tesla product plans has faced public challenges from the company, though subsequent developments included affordable variants of existing models.

*Reporting by Zhuzhu Cui, Zhang Yan and Chris Kirkham. Editing by David Dolan, Brian Thevenot and David Crawshaw.*

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