It is often criticized that Teslas are not yet affordable enough. As early as 2020, Elon Musk announced a remedy in the form of a vehicle model below the class of the Tesla Model 3. This vehicle is to cost 25,000 USD and still be equipped with a range of at least 250-300 miles (400-480 Km). In a sense, a Tesla Model 2 compact car that is more affordable than the Model 3. This could open up a lower price segment and thus make electric mobility accessible to a broader mass.
In order to untangle the facts and rumors a bit, I summarize all the details known so far about the Tesla compact car for 25’000 USD in this post. This post will be updated regularly as soon as new information is available.
So far, little is officially known about this vehicle. On the contrary, the rampant media coverage in the summer of 2021 did suggest that this vehicle will soon be launched on the market. There have also been wild hints that the vehicle may be launched without a steering wheel and pedals, since it can drive autonomously. At the same time, Elon Musk had only asked his employees whether the vehicle would need steering wheel and pedals at all. We know that Elon Musk thinks that autonomous driving will soon be ready for the market. His quote during a meeting of all employees was:
“Do we want to have this car come with a steering wheel and pedals?”
I don’t see any proof in this that it will be like that. The media simply exaggerated Elon’s statement once again. You could also call it free publicity.
What Tesla has communicated so far about the 25’000 USD compact car
The whole discussion about a possible “Tesla Model 2” was triggered by the publication of a photo from a Chinese design competition. The picture shows a possible concept of a Tesla compact or small car (cover picture of this article). Elon Musk also announced plans to establish a center for design and development at Tesla’s Shanghai site. These two announcement made the media conclude that the vehicle could be built in China.
In September 2020, on “Battery Day”, Elon Musk communicated that the announced new 4680 battery cells will also make a convincing smaller electric car possible at a price of 25,000 USD. With “convincing” he referred to the already mentioned range of at least 250 miles and as market start he mentioned 2023 (which probably put his engineers into a frenzy). In later statements, however, there was talk of Tesla wanting to focus on two battery cell types and the 4680 cells being used more for long ranges and playing a smaller role. In addition, it should then rather be two-thirds LFP cells, which are already used in the cheaper models today.
So there is a lot to suggest that the USD 25,000 vehicle could also be based on LFP cells.
Regarding the mentioned market launch from 2023, one could hear different information from CFO Zachary Kirkhorn at the quarterly report in October 2021. He did not directly deny the question whether Tesla still expects to produce the electric car for 25,000 USD from 2023. But he did say that Tesla’s general strategy is to ramp up production as quickly as possible. And to do so with as little additional complexity as possible. As long as there were not enough battery cells in the world in general, Tesla did not want to add new vehicles to its lineup, he said. The next product launch confirmed by Lars Moravy, vice president for vehicle development, was also the Cybertruck.
This statement indicated that the 25,000 USD model will definitely be launched AFTER the Cybertruck. And probably only when battery cells can be produced worldwide in sufficient quantities to cover the current demand of the model range. According to Elon Musk’s statement at the earnings call in January 2022, the Cybertruck will no longer be launched on the market in 2022. However, series production is likely from the middle of 2023.
Tesla’s compact car will therefore probably not be launched on the market before 2024. This was also underlined by Elon’s statement in January 2022 that the 25,000 USD Tesla would not be worked on at that time.
Tesla will not use the name “Model 2”, by the way. Elon Musk spoke out against the vehicle being called Model 2 at the shareholders’ meeting in October 2021. He cites the naming of the previous Tesla models as the reason, which is no coincidence. Model S, Model X and Model Y are named as planned and should actually make the word “SEXY” together with the current Model 3. However, Tesla was unable to win the naming rights for a Model E because they are held by Ford and Ford has announced a lawsuit. So the upside-down “E” in the form of a “3” had to serve instead. Tesla apparently wants to continue the nomenclature with letters in the future, according to Musk.
But what comes next? Maybe “Model Z”? According to the latest rumors from China, the little one will be called “Tesla Q”.
- Technical data are not yet known, but the vehicle is said to have a range of at least 250 miles.
- The vehicle will not be called Model 2.
- The price of the basic version should not exceed 25,000 USD (note: Prices in the USA are always shown without tax). In Europe, VAT will probably be added to this price.
Fans have come up with even more designs for a possible Tesla compact car. And a car portal and a graphics specialist have also published their own designs. However, these are all no official photos of Tesla and the design is anyway.
My conclusion about a possible Tesla compact car for 25’000 USD
Is a compact Tesla with a range of around 250 miles for 25,000 USD even technically realistic? I think at the present time probably not. The weight of such a small car would be enormously high. However, according to the manufacturer, the Renault Zoe still manages 237 to 245 miles with a 52 kWh battery. However, due to the further development of battery technologies, this should not be a problem by 2024. I doubt that the 4680 cells will be used for this vehicle. Because, according to Tesla, the 4680 cells will be used with priority for the Cybertruck and later the semi-truck. In addition, they will also be used for the Model Y due to the “structural battery pack”.
I think that’s also why the $25,000 model doesn’t seem to be a high priority at Tesla. In any case, the statements of CFO Zachary Kirkhorn indicate that Tesla still sees massive potential in the Model 3 and Model Y, which will probably be exploited first.
And quite honestly, Tesla would be foolish from a financial perspective to come onto the market so soon after the Model 3 and Y with a smaller model that generates less margin. The Model 3 and Model Y are obviously very profitable at the moment and demand is enormous. At the end of the day, Tesla’s primary goal is probably to grow as quickly as possible, and that is easier to achieve with high margins. Imagine what will happen to the share price if competitors suddenly sell more electric cars than Tesla. I suspect these are Tesla’s priorities.
It is very unlikely that the Tesla compact car will be launched on the market before 2024. However, it is unlikely it will become a real Tesla Mini car (Model 1). I suspect it will be more the size of a Volkswagen ID3.
Another problem could perhaps delay these plans even further. The prices for battery cells are rising again due to the enormously high demand and increased raw material prices:
However, a favorable cell price is a prerequisite for being able to produce small vehicles at lower prices at all. 100 USD per kilowatt hour has repeatedly been cited as the threshold above which electric cars can be sold at a lower price than a comparable combustion engine. This value was reached in 2020, but in the meantime prices are rising continuously due to increased raw material costs. We will see how the trend continues here.