What Reuters Reports
Tesla is developing an all-new compact electric SUV, according to a Reuters exclusive citing four people familiar with the matter. The vehicle would measure approximately 4.28 metres in length — significantly shorter than the 4.75-metre Model Y and closer in size to popular European crossovers like the Volkswagen ID.3 or Cupra Born.
The company aims to price it substantially below its current entry-level Model 3, which starts at $34,000 in China and approximately $37,000 in the United States. To reach a lower price point, Tesla plans to use a smaller battery pack and a single electric motor rather than the dual-motor setup available in current models.
Not the Cancelled "Model 2"
This project is distinct from the low-cost vehicle Elon Musk cancelled in 2024 when he pivoted the company toward robotaxis and humanoid robots. That scrapped project, informally known as the "Model 2," was widely expected to be a compact hatchback.
The new compact SUV would be an entirely new vehicle — not a variant of the existing Model 3 or Model Y platform. Tesla has reportedly contacted suppliers in recent weeks to discuss component details, though the project remains in an early development stage. Reuters could not confirm whether Tesla has formally approved the vehicle for production.
Production Plans
Three of Reuters' sources indicated the compact SUV would initially be produced in China, where Tesla's Shanghai Gigafactory offers the lowest manufacturing costs in its global network. One source added that Tesla also aims to expand production to the United States and Europe.
For European production, Gigafactory Berlin-Brandenburg would be the logical candidate. The facility currently produces Model Y and has capacity for additional models. A compact SUV priced below the Model 3 would directly compete in Europe's highest-volume EV segment, where vehicles like the Renault 5, Citroën ë-C3, and BYD Dolphin are gaining ground.
Why It Matters for Europe
Europe's fastest-growing EV segment is compact crossovers priced between €25,000 and €35,000. Tesla currently has no offering in this range — the Model 3 starts above €40,000 in most European markets, and the Model Y above €45,000. A smaller, more affordable Tesla SUV would fill a gap that competitors are aggressively targeting.
| Model | Length | Starting price (EU est.) |
|---|---|---|
| Renault 5 E-Tech | 3.92 m | ~€25,000 |
| Citroën ë-C3 | 4.01 m | ~€23,300 |
| BYD Dolphin | 4.29 m | ~€33,000 |
| Cupra Born | 4.32 m | ~€37,000 |
| Tesla compact SUV | 4.28 m | TBD (below Model 3) |
| Tesla Model Y | 4.75 m | ~€45,000 |
The timing aligns with Tesla's broader challenge in Europe, where registrations fell 43% year-over-year in Q1 2025 before rebounding in early 2026. A competitively priced compact model could address the affordability gap that has limited Tesla's reach in price-sensitive European markets.