Report: $25,000 Tesla Model 2 project nixed in favor of robotaxis

The most affordable Tesla may have been canceled. Again. 

According to a report Friday morning from Reuters, citing three sources familiar with the matter, the company has ceased plans to build a $25,000 Tesla that would slot below the Model 3 and Model Y in the lineup. 

A self-driving Tesla Robotaxi would continue to be developed on the new platform, according to the report.

If understood correctly by those sources, it would be quite a turnaround from earlier this year, when a lower-priced, higher-volume model positioned for global markets appeared to be due as soon as next year. In January, Tesla reportedly made a call to suppliers, also according to Reuters sources, for an affordable Tesla set to arrive in 2025. The report’s sources implied a total annual output for the model, codenamed Redwood, of more than 500,000 units.

In a presentation and Q&A for investors a day later neither the company nor Musk discussed the $25,000 Tesla project, but he did provide a little more background on the vehicle as a key for the company’s growth, as part of the company’s next-generation platform. 

“It’s worth noting that if you look at the average selling price of the other top-selling vehicles in the world, they are much lower-priced than the Model Y,” Musk said at that time, referring to the Toyota RAV4 and Corolla, and the Honda Civic. “So people are really stretching their wallets to be able to afford a Tesla.”

At that time Musk boasted of the next-generation, cost-cutting platform that Tesla was turning to, likely for that vehicle plus others, set to go into production in the second half of 2025 with a “revolutionary new manufacturing line” at its Texas plant. Musk claimed the “next-level” manufacturing arrangement will be “head-and-shoulders above any other manufacturing technology that exists anywhere in the world.”

Tesla Battery Day vertical integration overview

The project or platform wasn’t a surprising new development. Tesla made the idea of a “compelling” $25,000 Tesla, including fully autonomous driving capability, the focus of its 2020 Battery Day, enabled partly by the scaling-up of large-format batteries and improved chemistries—including LFP—and at that time it said the model was due in three years. 

Since setting the original 2023 arrival timeline, Tesla has sent conflicting signals on the project, which was confirmed by a top Tesla executive in China in 2021 as under development there. Some time later Musk said that the company wasn’t working on a $25,000 Tesla, and that the robotaxi project was more important.

A year later, Musk confirmed the much-touted third vehicle platform, which would allow future Tesla EVs to cost half as much to make and would allow for smaller, affordable vehicles. He also said the production volume for it would exceed that of all other vehicles combined. 

Musk has been saying since 2019 that he wants to turn Tesla into an operator of revenue-generating self-driving robotaxis. While Musk has talked about it many times since then, that actual business proposition hasn’t been laid out in any official Tesla financial documents.

Tesla has recently rolled out a version of its driver-assistance system called Full Self Driving (Supervised) that essentially replaces the Beta label of its previous effort, to enable some hands-free city driving. Full driver supervision is still required, and the system has nowhere near the fully autonomous functionality it would need for a robotaxi.

Tesla Model 3

Meanwhile, making a profitable EV at a significantly lower price is seen as one of the keys for Tesla to be able to compete in several new markets, including India. Tesla’s lowest-priced vehicle today is the Model 3, which starts at $40,380 including destination.

Musk, on his X social-media platform, later posted: “Reuters is lying (again).” But the CEO didn’t clarify which details in the piece were false. The original Reuters piece was updated and edited, including to incorporate that response from Musk.

Tesla doesn’t respond to media requests for clarification, although this project is surely one that financial analysts will push Tesla executives about at the next financial call, set for April 23. Breaking down this potential loss of future volume, in the context of Tesla’s worst quarter since pandemic shutdowns, it’s going to be a big one. 

UPDATED to include Musk’s allegation.