Tesla Could Revive Affordable EV Strategy with New $25,000 Model

Tesla’s $25,000 electric vehicle may be back on the cards, as the company has reportedly contacted suppliers about building a new, smaller vehicle.

The vehicle is set to be its own model rather than a variant of the Model Y or Model 3. It will reportedly be much shorter than the Model Y SUV, at 14 feet compared to the Model Y’s 15.7 feet. It will also be built in China, with launches in Europe and the US to follow.

The news was first reported by Reuters, which spoke to four people familiar with Tesla’s plans. If true, it marks a full reversal of the 2024 cancellation of a low-cost electric vehicle, which was reportedly pushed by Tesla CEO Elon Musk. Since then, in his messaging, Musk has said a low-cost electric vehicle is not necessary, as cars in the future would be autonomous, with the majority operating as robotaxis.

The smaller vehicle may have been revived due to its potential as an autonomous vehicle. If it is cheaper to build and smaller, it could be easier to scale into a robotaxi fleet. Tesla is reportedly designing it as a driverless car, with a human-driven option available.

Tesla has had two years of declining electric vehicle sales, which make up the bulk of the company’s revenue. It reported its first full year of revenue decline in 2025, with revenue dropping to $89.6 billion from $96.7 billion in 2024. A more affordable vehicle is likely to boost total sales and improve competitiveness against Chinese manufacturers BYD, SAIC Motor, and Geely.

Scaled back robotaxi ambitions

Even though Tesla remains focused on an autonomous future, it may have recognized that this is still some way off, particularly outside major cities.

While Musk has claimed robotaxis are just around the corner since about 2014, the company is only offering paid trials in one city, Austin. It has also recently admitted that its robotaxis are sometimes driven remotely by a human, rather than entirely by the onboard system.

Tesla has the largest customer base for driver-assistance technology, with more than 1 million people having purchased its Full Self-Driving service. However, this is only Level 2 autonomy, requiring the driver to remain at the wheel and ready to take over at any time.

Full autonomy, at Level 4, is being trialed and deployed at a much larger scale by Waymo, which recently announced a 20-city expansion in 2026.

Humanoid robot still the future

Alongside shelving a cheaper vehicle in favor of robotaxis, Tesla has also transitioned one of its factories from producing the Model S and Model X to building Optimus robots. The company is reportedly looking to scale up its humanoid robot line for limited external sales by this year or early next year, potentially costing upwards of $30,000 per unit.

Musk sees this as a potentially even larger industry than electric vehicles and robotaxis. In his Master Plan Part IV, he said that Optimus robots could account for 80% of the company’s revenue. Like robotaxis, however, the commercial launch of these robots has been promised for several years, with delays stretching back to 2025.

Also read: Unitree’s IPO filing shows China’s humanoid robot race is increasingly about profitability, not just scale.