Tesla Reportedly Back in Mass-Market Game With New Compact SUV
After canceling the Model 2 in 2024, Tesla is working on an all-new smaller electric SUV for Shanghai production, sources tell Reuters — targeting late 2027 or 2028.
Tesla is working on an all-new compact electric SUV, a significant reversal just two years after the company abruptly canceled its previously announced sub-$25,000 mass-market car, according to a report published by Reuters on Thursday.
Four people familiar with Tesla’s plans confirmed to Reuters that the company has contacted suppliers in recent weeks to discuss development of a smaller, cheaper electric vehicle. The proposed SUV would be compact — roughly 14 feet long, about the size of a Toyota Corolla — and is being targeted for production at Tesla’s Shanghai Gigafactory, with a potential launch window of late 2027 or 2028.
Smaller Battery, Shorter Range to Cut Costs
The project marks a notable shift in Tesla’s affordable-vehicle strategy. After scrapping the “Model 2” codename project in early 2024 — which was supposed to be a dedicated $25,000 platform — Tesla pivoted briefly toward refresh variants of existing models. This new report suggests Tesla is now pursuing a clean-sheet design instead.
According to Reuters’ sources, Tesla plans to use a smaller battery pack in the new SUV to bring costs down, though that will mean a shorter driving range compared to the 306–327 miles offered by the current Model Y. Pricing specifics weren’t disclosed, but the vehicle is expected to land below the Model Y in Tesla’s lineup.
Tesla stock ticked up roughly 0.5% following the Reuters report.
Back to the Mass-Market Bet
Tesla CEO Elon Musk had previously championed the Model 2 as a key piece of the company’s goal to reach 20 million annual vehicles. That project was canceled amid broader company restructuring and a sales slowdown. Since then, Tesla has launched more affordable versions of the Model Y and Model 3, but those remain based on existing architectures.
A dedicated compact SUV would give Tesla a proper entry-level offering in the competitive Chinese market, where BYD and a host of domestic brands continue to gain share with affordable EVs. For global buyers outside North America, a smaller, competitively priced Tesla has long been one of the most-wanted vehicles in the EV space.
No official timeline or specifications have been confirmed by Tesla, and a company spokesperson declined to comment to Reuters.
What This Means for the EV Market
If Tesla does move forward with a sub-Model Y SUV for Shanghai production, it would signal a renewed commitment to volume growth over margin expansion — a notable pivot at a time when many automakers are pulling back on affordable EV investments amid softening demand and tariff uncertainty.
We’ll continue to monitor this story as more details emerge.
Image: Illustrative render of a potential Tesla compact vehicle — not an official product photo.
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