Update: ‘VW confirms a pair of sub-25k Euro entry-level EVs’ section added.
In June 2021, Tesla launched the Model S Plaid as the quickest (0-60 mph) series-production car that made a bold statement in the auto industry. Over the next few years, it intends to push the limits at the low end of the line-up, not in the aspect of acceleration and performance but affordability. To truly democratize electric cars, Tesla will launch an electric car with a USD 25,000 (EUR 23,594) price this decade, as confirmed during its 2020 Annual Shareholder Meeting and Battery Day.
Here’s what has been said or reported on Tesla’s mass-market car project. This article also contains renders of the compact Tesla done by automotive designers and sleuths, all of which are unofficial. The story also contains speculations about the technology, including battery chemistry.
Tesla hasn’t revealed the name of its USD 25,000 electric car, but the media refers to it as the Tesla Model 2 and sometimes even as the Tesla Model Q. However, the company’s co-founder and CEO, Elon Musk, admitted at its 2021 annual shareholder meeting that it doesn’t plan to use the former for sure. He said:
Model 2 is not a car. There’s no Model 2.Elon Musk, co-founder and CEO, Tesla (2021 annual shareholder meeting)
On the second day of the 2022 B20 Summit Indonesia (November 14, 2022), the name of the affordable Tesla model came into question again. Musk attended the event virtually, and the host asked him if Tesla should christen its entry-level car ‘Model I,’ with the I standing for Indonesia and India, where affordable EVs may become popular in a few years. While he dodged the speculation, Musk admitted that a more economical Tesla makes sense and that the company should act on it.
In 2018, ‘Tesla Model C’ emerged as one of the rumored names for the car positioned below the Model 3. Until the actual name of the USD 25,000 Tesla model is announced, we’ll refer to it as the Model 2 or Model Q for easier understanding and for our story to be discoverable via search engines.
Tesla Model 2 prototype built?
Rumor has it that Tesla has completed the prototype of the Model 2 in China. In 2021, Twitter user Ray4Tesla claimed this based on a post of a reliable source who goes by the name 不是郑小康 on Weibo. Ray4Tesla said that the Chinese social media handle frequently gets it right before others, and the Weibo post is as follows (translates):
Model next gen(:) It’s not a smoke bomb. Most of the suppliers have been negotiated, and they will be small-scale by the end of the year, but they are not disclosed.Weibo user 不是郑小康 in July 2021
Ray4Tesla predicted that the Tesla Model 2 prototype is ready and that trial production (which usually yields a small volume of cars for testing, demo, and customer clinics) would have started at the end of 2021.
Crossover-style Tesla Model 2
An alleged spy picture of a USD 25,000 Tesla from a factory, probably Tesla Gigafactory Shanghai, surfaced on January 4, 2023, on Chinese portals. Rather than a newly designed hatchback, the camouflaged model looked like a shortened, lowered, and narrowed Tesla Model Y. Additionally, it appeared to have a shorter wheelbase.
The design sketch above was posted by Tesla on Chinese social media following the Made-in-China Tesla Model 3 launch ceremony in January 2020. During the event, Musk also stated that the company wanted to create a design and engineering center in China to design an original car for worldwide consumption. Following the message, Tesla invited candidates to submit portfolios. Soon after, the company was on a hiring spree in China for the Gigafactory.
On February 22, 2023, during the inauguration of the Tesla Global Engineering Center in Palo Alto, California, Tesla likely teased the Model 2 in a video, which we’ve embedded at the end of this section. At the 11:26 mark, you’ll see a covered vehicle that looks like a downsized Tesla Model Y, as we stated in the ‘Crossover-style Tesla Model 2’ sub-section of the above section.
Several design sketches of what seems to be the Model 2’s exterior and interior follow immediately next. One of them appears to show a small EV identical to the one in the sketch we’ve included in the ‘Crossover-style Tesla Model 2’ sub-section of the above section.
Video Source: YouTube/Tesla
Role of the Chinese R&D center
Tesla has high hopes for China as a future hub for R&D and manufacturing. During the opening ceremony of the World Internet Conference 2021 on September 26, 2021, Musk said that the company would continue increasing investments and R&D efforts in the country.
After inaugurating the Tesla Gigafactory Shanghai in 2019, it constructed the Tesla Shanghai R&D and Innovation Center and a Tesla Shanghai Super Factory Data Center in 2021. On October 25, 2021, the company announced that it had completed building the globally relevant R&D center and the local data center. Tesla can use the Chinese R&D center for vehicle development, including software, hardware, electronics, materials, etc. The Chinese data center will store China’s operating data, like factory production information, for instance.
From initial design to final testing, the creation of the USD 25,000 Tesla is likely to have an influence from its first R&D center outside the United States. In an interview with Xinhua Net (via YouTube/T-Study uploaded in Feb 2021), Tesla China President Tom Zhu confirmed that the company would be able to design, engineer, develop, and test models at this facility.
Zhu said that Tesla had shared the ultimate goal of the Tesla China R&D center on many public occasions. He suggested models made here will indeed be global Teslas, not China-exclusive cars.
The ultimate goal has been mentioned in many occasions. In the future, we want to design, develop, and produce an original model in China. It is manufactured here and sold to the world. This R&D center is the starting point of the goal. We have mentioned before that we hope the vehicle built in China can have 100% local components.Tom Zhu, President, Tesla (China), in the video uploaded by Youtube channel T-Study in Feb 2021.
The Tesla Model 2 pictured (display image) is from Instagram user Sugarchow (Instagram handle: sugardesign_1). Like most speculations, it shows the USD 25000 Tesla car as a compact hatchback to challenge the VW ID.3 and Nissan Leaf. European customers could be the main target for the cheapest Tesla, but China shows the biggest potential in the current scenario.
Tesla Model 2 imagined as a supermini
Tesla will likely offer the full self-driving pack (Tesla Autopilot) in the affordable Tesla Model 2, bringing autonomous features to a wide audience. Musk confirmed at the 2020 Battery Day event, where he stated the company was confident in making a fully autonomous USD 25,000 Tesla model in three years, which has since then changed.
Best-in-class infotainment system
The Tesla compact car will attract young customers who’ve wanted a Tesla but couldn’t afford the line-up. This tech-savvy crowd deserves nothing less than Tesla’s best. For this reason, the Model 2 will probably have an infotainment system with a wide range of connectivity and entertainment solutions. In December 2022, the company brought Cyberpunk 2027 and thousands of other new games to the Model S and X. That month, it started offering Apple Music in its EVs too.
On October 19, 2022, during Tesla’s Q3 2022 earnings conference call, Musk offered hints on the entry-level Tesla. He said that the company’s future EV platform would be smaller than the one underpinning the Model 3 and Model Y and cost about half to make. The company will use everything it learned from developing the platforms underpinning the S, X, 3, Y, Cybertruck, and Semi models while making the new platform.
Production of USD 25,0000 Tesla will take place at a new Gigafactory near Monterrey (Nuevo León), Mexico. Giga Mexico may mainly or only serve North American demand. European countries could get their supply from Gigafactory Berlin-Brandenburg, while China and some other markets could source from Gigafactory Shanghai.
Elon alluded to the fact that Mexico will build our next-gen vehicle, but we will also be doing that in our other plants, and so it’s really about getting them all up and running. We expect that to be a huge volume product.Lars Moravy, Vice President – Vehicle Engineering, Tesla (2023 Investor Day on March 1, 2023)
In 2020, a Chinese Environmental Impact Assessment document discussed expanding production capacity at the Shanghai facility for “the production capacity of Model 3, Model Y, and related derivative models.”
During Tesla’s Q3 2022 earnings conference call, Musk indicated that the targeted sales volume exceeds all of its other vehicles combined. He was talking about the anticipated production volume of the model:
It will, I think, swiftly become, like shortly exceed the production of all our other vehicles combined.Elon Musk, co-founder and CEO, Tesla (Q3 2022 earnings conference call on October 19, 2022)
Tesla’s goal of achieving 100% localization in China, which local President Zhu talked about in the interview, is not far from reality. 100% localization would allow the company to price the Model 2 aggressively.
With the high level of quality that Tesla aims to offer even in its most affordable car, meeting the target price of USD 25,000 is challenging. The LFP chemistry will keep the battery cost low, but there’s more the company can do. About that, below is what Zachary Kirkhorn, CFO, Tesla, said during the Q1 2021 earnings conference call:
Obviously, building a car like a Model S is quite complex and has various moving parts. Model 3 and Model Y were steps of improvement in that. But when you look at some of the other advancements that we are including in the Model Y, factories into Austin and Berlin, we have reduced the body pound by as much as 60%. And the part costs money.Zachary Kirkhorn, CFO, Tesla
Another way Kirkhorn suggested Tesla can meet the production cost targets is by making cars in high volumes in four factories worldwide.
Tesla Model 2 envisioned as a city runabout
Tesla Model 2 battery & motor
New drive unit
It is Tesla’s goal to significantly reduce the use of rare earth materials in the components of its cars and increase their efficiency. Tesla announced on March 1, 2023, that its next drive unit would use 75% less Silicon Carbide without compromising performance or efficiency. The company indicated that it plans to use this drive unit in the USD 25,000 model. A fully indigenous controller will be used in this car. There will be a 48-volt lithium-ion auxiliary battery that will require less current and thinner wires.
On the LFP battery
Tesla could offer the Model 2 with a new Iron-based battery, which promises long cycle life. Further, the shift from Nickel to Iron for its future entry-level cars indicates Tesla is keen on lowering the cost of the vehicle. An Iron base (which is more abundant than Nickel) would mean that Tesla would have fewer supply constraints. However, Musk indicated he had urged mining companies to produce more of the material.
With its long cycle life, the LFP battery (Lithium Iron Phosphate) would be an integral part of the new entry-level Tesla. Long cycle life is paramount for commercial applications. Since Tesla already introduced the Model 3 with LFP, it could have essential insights into this chemistry for optimization in the mass-market Model 2 when it is ready for launch.
Towards the end of the Q2 2021 earnings conference call, Musk hinted that the company may not use the 4680 format for the LFP battery cells. He said:
I see us sort of like consolidating around a 4680 nickel-based structural pack for long-range vehicles. And then not necessarily a 4680 format, but some other format for iron-based cells.Elon Musk, co-founder and CEO, Tesla (Q2 2021 earnings conference call)
Tesla Model 2 Range
We feel that Tesla may use an LFP battery pack with around 50 kWh (total/gross) energy content that offers a range of around 250 miles, enough to make it an affordable and reliable daily driver for urban conditions. In the Model 3, the company used to offer a CATL 55 kWh LFP battery pack that delivered a range of 468 km or 291 miles (NEDC/China).
The Renault 5, a potential rival to the Tesla Model 2, will deliver a range of 400 km or 249 miles in Europe’s WLTP test cycle when it launches in early 2024. There are similar price and range expectations from other upcoming compact EVs in Europe. So, it’s clear that in addition to a base price of under EUR 25,000, the Tesla Model 2 must offer a range of at least 250 miles to maintain its competitive position. Most configurations could have a single motor powering the rear wheels, and an AWD performance variant may top the range.
Model 2 as a C-segment hatch
Tesla Model 2 Release Date
The Tesla Model 2 may debut at a special product event in 2023. The market launch may not take place before 2025, though.
It’s also reported that Tesla has resumed Model 2 work after a brief pause to focus on its priority models. Months after Musk indicated that the company had put the Model 2 project on hold, The Detroit Bureau reported on November 3, 2022, that the future entry-level EV is back in development. The article doesn’t reveal specific details about when the project will come to fruition, though. Tesla continues maintaining secrecy about the future car, but we should get some kind of an update on March 1, 2023.
Speaking at a Goldman Sachs event on September 12, 2022, Martin Viecha, Head Of Investor Relations, Tesla, spoke about the USD 25,000 Tesla car, Business Insider reported the same day. He said that Tesla wants to launch a more affordable model eventually. The company needs a cheaper car before introducing the Robotaxi service, he added. A specific launch timeline still remains a question mark, though.
In its 2023 predictions that were released on December 29, 2022, Tesla stock analysts at Loup Ventures believe that the Model 2 will only be unveiled in early 2024. Analysts at the research-driven venture capital firm, which has its bases in Minneapolis and New York, are opining that Tesla is likely to put the new EV into full-scale production only in mid-2025. The firm also cited practical but economic factors such as a possible recession in the industry, plus possible cannibalization of Model 3 sales should Tesla launch the predictably-cheaper Model 2 in a shorter timeframe.
When asked about the progress of the project during the Q4 2021 and full year 2021 earnings conference call, Musk said that Tesla has too many other projects of higher priority.
Well, we’re not currently working on our USD 25,000 car. At some point, we will, but we have enough on our plate right now, too much on our plate, frankly. So, at some point, there will be. But I think that’s sort of a question that — it’s sort of the wrong question. Really, it’s really the thing that overwhelmingly matters is when is the car autonomous? I think, at the point in which it is autonomous, the cost of transport drops by, I don’t know, a factor of 4 or 5.Elon Musk, co-founder and CEO, Tesla (Q4 2021 and full year 2021 earnings conference call on January 26, 2022)
Investors & analysts react to the Tesla Model 2 delay
During Tesla’s Q4 2021 and full-year 2021 earnings conference call, Musk said that the company is not currently working on its USD 25,000 model. Analysts and investors haven’t taken this well. For instance, AB Bernstein Analyst Toni Sacconaghi doubts the company can sell more than 3 million vehicles in 2024 if it’s not developing the USD 25,000 EV. Guggenheim analyst Ali Faghri has said that entering the lower price, volume segments “will be critical to support the company’s growth outlook” towards the middle of the decade, as per a report from Yahoo Finance.
Tesla’s competitors are already thinking about how to make a competitive electric car that most buyers can afford. Lucid Motors, for instance, is considering a low-range, low-cost model, suggests a report from Business Insider.
Peter Rawlinson, Lucid Motor’s CTO and CEO, has said if customers don’t need a long range in the car, can charge at home easily, and have access to plenty of fast-chargers, “maybe 150 miles is alright.” Further, Rawlinson expressed his interest in offering an EV with an ultra-high energy efficiency of 6 miles/kWh. Even with a small, ~50 kWh battery pack, such energy efficiency would translate to a range of about 300 miles!
VW confirms a pair of sub-25k Euro entry-level EVs
Volkswagen drew a step closer to introducing a sub-25,000 euro (appx. USD 26,565) entry-level EV on March 15, 2023. The German automaker previewed the future electric car with the VW ID. 2all concept, with the expectation of unveiling the dealer-bound model in 2025 for the European market.
The all-new electric hatchback should get VW’s latest design language with modern features and an estimated WLTP range of up to 450 kilometers (280 miles) while being based on the MEB Entry platform. Volkswagen is also planning another electric car with a targeted starting price of under 20,000 euros (appx. USD 21,245), which would undercut Tesla’s rumored entry-level EV’s price if it comes stateside.
Tesla Model 2 or Tesla Model Q FAQs
What is the Tesla Model 2 release date?
The launch of the Tesla Model 2 or the Tesla Model Q (name: TBA) is unlikely before 2025.
Which electric cars are considered Tesla Model 2 rivals?
The Model 2 will challenge the likes of the VW ID.2, Renault 4, Fisker Pear, and the affordable EVs from the Honda-GM partnership.
What is the estimated Tesla Model 2 price?
The Tesla Model 2 would start at around USD 25,000.
Featured image: SugarDesign