Tesla reportedly developing smaller, cheaper electric SUV

Tesla is developing an all-new smaller and cheaper electric SUV, according to people familiar with the matter cited by Reuters.

The compact vehicle would be a new model rather than a variant of the company’s existing Tesla Model 3 or Tesla Model Y, the sources said. 

Tesla has reportedly been in contact with suppliers in recent weeks to discuss design specifications and manufacturing plans.

According to Reuters, the vehicle is expected to be produced in China, with additional potential production in the United States and Europe. 

The compact SUV is said to measure around 4.28 meters in length, making it significantly smaller than the Model Y.

The project comes after Chief Executive Elon Musk previously shifted focus toward robotaxis and humanoid robotics, including shelving an earlier low-cost EV initiative in 2024. 

The renewed push has raised questions about whether Tesla is returning to a mass-market EV strategy or designing vehicles aligned with its autonomous driving ambitions.

One possibility, according to sources, is that the new model could be built with flexibility for both human driving and future full autonomy. 

Tesla has increasingly focused on developing vehicles that can eventually operate without drivers, while acknowledging that regulatory approval and adoption of fully autonomous systems may take years in many markets.

The company currently operates a limited robotaxi service in Austin, Texas, with human safety monitors present in some vehicles.

The compact SUV project is still in early development, and it remains unclear whether Tesla has formally approved production. 

The company has a history of announcing or developing products that face significant delays before reaching the market, including the Tesla Semi and the long-delayed Roadster.

Sources say the new vehicle could be priced significantly below the Model 3, with cost reductions achieved in part through a smaller battery pack and reduced driving range compared to Tesla’s existing lineup.

If completed, the model would mark one of Tesla’s most significant efforts yet to re-enter the affordable EV segment amid increasing competition and slowing growth in its core electric vehicle business.