Any buyers who have been waiting for a genuinely affordable, appealing electric vehicle to hit the market can say goodbye to one of the most exciting options that everybody assumed was coming down the pike. According to Reuters, Tesla has scrapped plans to make its long-promised cheaper EV.
The smaller, lower-priced Tesla—unofficially dubbed the Model 2 by the company’s fans—had served as a key part of the automaker’s product roadmap for years. Back in 2020, Tesla CEO Elon Musk announced that his upcoming EV for the masses would cost just $25,000, many thousands of dollars less than most EVs on offer then and now. Such a vehicle would fuel Tesla’s ambitious growth plans while opening the world of electric cars up to a vast new segment of buyers.
Tesla’s cheaper car
Tesla said it was working on a cheaper vehicle that it could sell to far more people. Reuters reports that the company pulled the plug on the project, choosing to prioritize a robotaxi instead.
That was the idea, anyway. Now, Reuters says Tesla will use the low-cost, next-generation platform it’s developing for a robotaxi. Musk, for his part, denied the report without calling out any specific inaccuracies.
Prices for new electric cars have declined steadily as the market has grown. A Tesla Model S cost around $60,000 when it launched over a decade ago as one of the first modern EVs. Today, Tesla’s lineup bottoms out at $38,990 for a car that goes farther on a single charge and takes less time to fuel up.
Still, high prices are hindering EV adoption. In surveys, car buyers consistently cite purchase price as one of the biggest factors making them stick with combustion. (Concerns about limited range and where to charge are the other major deterrents.) While cheap gas-powered vehicles aren’t exactly abundant these days either, the problem is more severe in the smaller EV market.
In February, the average new EV sold for $52,314, roughly 19% more than the typical non-luxury mainstream car, according to Cox Automotive. The industry-wide average was $47,244 for the month.
A rendering of what Tesla’s cheaper vehicle could look like.
Sub-$30,000 electric options do exist—but with serious compromises. The Chevrolet Bolt EV and EUV use aging technology that delivers slow charging speeds. The Nissan Leaf suffers from the same basic problem and also comes with an outdated charging port design and only 149 miles of range in its base configuration. Expanding one’s budget to $35,000 brings a few more appealing options into the mix, but cash-strapped buyers set on a new EV aren’t exactly swimming in choices.
With more EV-manufacturing know-how than any other car company and factories already churning out EVs profitably on three continents, Tesla was probably best-suited to deliver a sophisticated, accessible EV that people actually want to buy. Still, there are some bright spots on the horizon, even with Tesla out of the game.
The Volvo EX30, a compact SUV, arrives this year with a $35,000 starting price and a healthy 275-mile range. The $35,000 Chevrolet Equinox EV will hit a similar sweet spot. Ford has said it’s developing a small EV that would compete with the Model 2 and inexpensive Chinese models. It’s widely expected that Chinese brands will enter the U.S. market by the end of the decade with prices that undercut the established competition.
What’s Behind Tesla’s Move?
First off, the EV market is hitting a period of slower growth, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. The next wave of buyers—mainstream consumers with mainstream concerns—isn’t clamoring for electric cars like the early adopters before them did. Meanwhile, China’s auto industry is rapidly emerging as a global force capable of churning out competitive EVs at fire-sale prices.
“When Tesla is already having trouble selling $35,000-$40,000 EVs, the idea of bringing in a less expensive model, and then having it compete against even lower-cost Chinese imports. That’s a risky business proposition,” Fiorani said.
The Volvo EX30 should bring a refreshingly cheap and capable EV option to the U.S. market.
He thinks it would be wise for Tesla to launch a lower-cost vehicle in five or six years, when regular consumers should be more open to electrification than they are today. Musk said in March that Tesla would aim to start production on its next-generation platform by late 2025.
Cost isn’t the only thing keeping EV-curious consumers on the sidelines. As Ivan Drury, director of insights at Edmunds, points out, the target customer for a sub-$30,000 EV is more likely to have serious hang-ups about charging infrastructure and range than a higher-income shopper. A low-cost EV is more likely to be someone’s primary means of transportation, and that buyer may be less likely to have a garage or driveway where they can conveniently plug in, he said. So a cheaper EV wouldn’t automatically have buyers coming out in droves, he said.
“It’s terrible in the sense that there’s something that could have shown up on the market and really revolutionized things,” he said. “But the barriers to entry are so great that I don’t know if it would have really worked.”
The Risk For Tesla
Still, Tesla is taking on significant risk here. The lower end of the EV market will be huge someday. In 2023, roughly 36% of new vehicles sold in the U.S. came in below the price of Tesla’s entry-level cars, according to the research firm BloombergNEF. Strong sales of the Chevy Bolt EV and EUV in 2023 show that there’s demand for low-cost EVs right now as well.
The Chevy Bolt twins, discontinued for 2024, were a bright spot in an otherwise expensive EV market.
Not to mention, the reported decision makes Tesla a car company with no immediate plans to launch new cars. Without the Model 2, Tesla’s future growth relies on the models currently in its stable (which aren’t getting any younger), a polarizing new Cybertruck pickup (that serves a niche audience) and a robotaxi that may or may not actually work.
Elon Musk has long-promised self-driving Teslas but hasn’t delivered. Building self-driving cars has proved far more challenging than the autonomous vehicle industry ever imagined. And Musk is set on doing it his way, without the detailed maps and advanced sensors used by the likes of Waymo, Alphabet’s robotaxi outfit.
Affordable EVs will hit U.S. streets sooner or later. If Tesla does indeed bow out, rivals like China’s BYD will be happy to pick up the slack. Until then, Drury has some words of advice that price-sensitive EV shoppers may not love to hear: Buy used.
Contact the author: tim.levin@insideevs.com
