Everything we know about the $25k Tesla car or ‘Tesla Model 2’ [Update]

Tesla is working on a $25,000 EV to slot below the Tesla Model 3 that would become its new entry-level model, making it a Tesla for everyone, well, almost everyone. As depicted in these renders from SugarDesign (Instagram: sugardesign_1), it could be a compact hatchback.

There are various speculations about the name of the USD 25,000 Tesla EV, and the most common one is Tesla Model 2. However, Tesla co-founder and CEO Elon Musk has poured cold water over this rumour, confirming that there’s no such car on the roadmap. Addressing investors and analysts at the company’s 2021 annual shareholder meeting on October 8, 2021, Musk said:

Model 2 is not a car. There’s no Model 2.

Elon Musk, co-founder and CEO, Tesla (2021 annual shareholder meeting)

For this article to be discoverable by Google search engine and for the benefit of those who are yet to get the memo on the name, we’ll call the future Tesla launch as the Model 2 a bit longer. We will gradually update it as we receive more information and change over when the car gets a new name!

Tesla Model 2 platform & production

ElectricVehicleWeb has seen an Environmental Impact Assessment document about the expansion of the Tesla Gigafactory Shanghai that was released in February 2021. The project name reads: “The second phase of the Tesla Gigafactory Project (Phase I).” It says that after completion of the project, “the production capacity of Model 3, Model Y, and related derivative models will be added.”

The document mentioning “related derivative models” is whipping up rumours on the web that the $25,000 Tesla car (the internet calls it the Tesla Model 2, signifying its lower positioning) will be based on the same platform as the Model 3 and Model Y. It is speculated that it could be a smaller, hatchback version of the Model 3.

Tesla Model 2 side profile rendering
The $25000 Tesla could be a small hatchback or SUV with Europe and China set as target markets. Image Source: Instagram/sugardesign_1

Another possibility, one that we feel is more substance, is that Tesla builds the Model 2 on a newly developed modular platform, which offers a lot of flexibility and cost savings like Volkswagen Group’s MEB. The same set of components like motors, power electronics, suspensions, brakes, etc., could be used on multiple low-cost models built on this scalable platform.

On 30 July 2021, citing a post from Weibo user 不是郑小康, Twitter user Ray4Tesla said that the prototype of the upcoming entry-level Tesla is complete and the future model’s trial production (where a small volume of cars are made for testing and clinics) will begin at the end of 2021. Ray4Tesla said that the Weibo user has a record of releasing true leaks. Below is what the Weibo post said (Google translate):

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 January 2021, a report from auto.sina.com said that “it is estimated that” the first batch of models will be tested on the road soon for trials. It also said that the unveiling could take place during the second half of the year and that the Guangzhou Auto Show is the most likely hosting the world premiere. However, we would take such claims with a pinch of salt as Tesla has not hinted about working on a concept or premiere, and the company holds its own world premiere events instead of introducing products at motor shows.

During the Q1 2021 earnings conference call Musk suggested that the development work of the base car is progressing. “We are continuing to ramp production of Model Y in Fremont and Shanghai. In the background, we’re continuing work — development work on the Semi, Cybertruck, the Roadster and other products,” Musk said.

Tesla entry-level car to be compelling

At the 2020 Annual Shareholder Meeting and Battery Day, Tesla confirmed two new electric cars. The first Tesla electric car would make the brand more accessible with a lower-than-ever price tag of $25000.

$25000 Tesla Model 2 and Tesla Robotaxi
The Tesla small EV, possibly the Tesla Model 2, and the Tesla Robotaxi, should debut by the end of 2023. Image Source: Tesla

In its presentation, Tesla revealed plans to launch a compact Tesla electric car and a Tesla Robotaxi. These new Tesla cars would be smaller than the Model 3, currently the smallest and most affordable Tesla EV. Below is what Musk said about the new entry-level electric car:

We are confident that in the long term we can design and manufacture a compelling $25000 electric vehicle. This has always been our dream from the beginning of the company.

Elon Musk, co-founder and CEO, Tesla

No pedals, no steering

This year, Tesla made the Model S way more futuristic than rivals by fitting it a yoke-style steering wheel. The company is considering a radical departure for the Model 2, one with no steering and pedals, Twitter user and Tesla tracker Sawyer Merritt said, citing Musk’s meeting. Maybe Tesla will make such an interior a reality in the second half of the decade in the fully autonomous, SAE Level-5 Model 2 robotaxis.

Tesla Model 2 battery

Tesla is taking a diversified cathode approach for electric vehicles. The company already sells the Model 3 with a CATL Lithium Iron Phosphate battery pack for China. It plans to offer the next entry-level model, the yet-to-be-named $25000 Tesla, also with an Iron-based battery pack. This would lead to not only the lower cost of the battery pack but the easy availability of the same and thus fewer supply constraints compared to battery packs with Nickel, if at all.

$25000 Tesla Model 2 Tesla battery cathode strategy
The $25k Tesla will likely feature Lithium Iron Phosphate battery pack. Manufacturing could take place at both Tesla Gigafactory Shanghai and Tesla Gigafactory Berlin. Image Source: Tesla

In order to scale, we really need to make sure that we are not constrained by total Nickel availability. I actually spoke with the CEOs, the biggest mining companies in the world, and said please make more Nickel because it’s very important. And, so, I think they are gonna make more Nickel. I think we need to have a kind of a three-tiered approach to batteries. So, starting with Iron that’s kind of like a medium-range, and then Nickel-Manganese that’s sort of a medium-plus/intermediate, and then high-Nickel for long-range applications like Cybertruck and the Semi.

Elon Musk, co-founder and CEO, Tesla

Analysts believe that Tesla’s new 4680 battery cells will be key to releasing the $25,000 EV. Considerably cheaper to manufacture and much more powerful as well, 4680 battery cells are on track for making to production in 2022. “I think we still feel quite optimistic about this achieving volume production of the 4680 next year,” Musk said during the Q1 2021 Earnings Conference Call. “It appears as though we’re about 12, probably not more than 18 months away from volume production of the 4680,” he said. Tesla’s new 4680 cells are claimed to offer five times the energy density and six times the power of the company’s previous cells.

Seeing how supply chain issues can cripple vehicle production, Tesla plans to spread the production of the 4680-format cells across continents. Musk said at the 2021 annual shareholder meeting that the company will manufacture them at a facility near the Fremont vehicle assembly plant in the U.S. The North American factory “will be able to make more than enough cells for Giga Texas to scale production of Model Y,” he said. European and Asian production is also likely at a later stage.

The nice thing is like having at least a factory in Europe and a factory in China, a factory in North America or at least have factories where – for our high-volume products – where they’re on the continent where most of our customers are.

Elon Musk, co-founder and CEO, Tesla (2021 shareholder meeting)

BYD Battery for the Tesla Model 2?

Another speculation, a more recent one, is that Tesla will use the “ultra-safe” BYD Blade battery with LFP cells in the Model 2. BYD is already conducting C-sample testing of these Blade batteries, and it will begin supplying them in Q2 2022 (April-June 2022), as per a report from Financial Associated Press.

A more recent report from Financial Associated Press says that Tesla has ordered 10 GWh worth of battery packs from BYD. Should those be battery packs with an energy content of approximately 50 kWh, that’d convert to around 200,000 units. Officially, neither Tesla nor BYD has confirmed if they have partnered for battery packs or even discussed any such contract.

BYD says that its Blade batteries with LFP cells can last till 1.2 million km (nearly 750,000 miles) after 3,000 cycles of charging/discharging. However, safety, not longevity, is the USP. In a nail-penetration test, the Blade Battery didn’t emit smoke or fire, and its surface temperature didn’t get extremely hot, staying between 30 and 60 degrees Celsius. As for the range, in the BYD Tang, the BYD Blade battery provides a range (NEDC) of 505 km (314 miles). BYD makes the Blade batteries in Chongqing, China.

Musk hinted at the so-called Tesla Model 2 back in July 2020

Musk said during the Q2 2020 earnings call last year that it is reasonable to assume that the company “would make a compact vehicle of some kind” in the future. However, he indicated that such a product, if given the green signal, is still a few years away from going on sale and the Cybertruck, Roadster, and Semi are the company’s next new projects. Musk said that a higher-capacity variant of an existing Tesla model could be expected at the same event.

$25000 Tesla Model 2
The USD 25,000 Tesla passenger car can be a gamechanger for the company, as it democratizes the electric car. Image Source: Tesla

The fact that Tesla electric cars still aren’t affordable enough is troubling Musk, and he acknowledged that is something needing a fix. One example is the Tesla Model 3’s new cheaper iron phosphate battery pack in China, as stated above. One can expect Tesla to take several similar measures to bring down the price of its car range.

I do not think we lack for desire for our product, but we do lack for affordability. And so we have to improve the affordability of our products so they are not out of reach of people. We want to bring them more in reach over time but also improve our cost of production.

Elon Musk, co-founder and CEO, Tesla (Q3 2020 Earnings Conference Call)

While Tesla aims to bring its entry price down to $25,000 in a few years, analysts see the starting price of EVs (from mainstream brands, for entry-level products) falling far below that in the distant future.

“Based on our frequent discussions with OEMs, suppliers and domain experts in the EV business, we would not be at all surprised to see the prices of many EVs eventually fall to below $5k/unit,” a team of analysts at Morgan Stanley led by Adam Jonas Morgan said in a note to investors, as per a businessinsider.com report. At the moment, the Citroen Ami quadricycle is priced under EUR 7,000 (approx. USD 8,100), while the Dacia Spring comes to well under EUR 8,000 with government subsidy (approx. USD 9,250) in Europe.

Tesla Model 2 in Europe & UK

As per Autocar UK, the new electric car from Tesla is expected to be priced starting at around £20,000. At this price, it is eyeing popular all-electric models like the Nissan Leaf, VW ID.3, and the Kia e-Niro. Currently, the Tesla Model 3 sedan retails at £40,990 in the UK, so the arrival of this new compact electric car would truly democratize EVs. Tesla’s new batteries should offer a driving range of at least 250 miles (402.3 km) for the upcoming entry-level car.

Tesla Model 2 rear three quarter rendering
Tesla Model 2 should offer a driving range of at least 250 miles (402.3 km). Image: Instagram/Theottle

Priced under EUR 25,000, the new Tesla Model 2 will also rival the production version of Renault 5 and Renault 4 models in Europe. Renault has already confirmed that the production Renault 5 will deliver a range of 249 km (400 km, WLTP cycle) and will arrive in early 2024. To be available with a single motor for rear wheels, with optional AWD configuration for higher variants, the Renault 5 would have a starting price tag around EUR 21,000, a third lower than the Zoe.

China R&D Center

Tesla has completed its first research centre outside the U.S. Located in Shanghai, China, just like its first overseas vehicle plant, this facility will carry out original development work around complete vehicles, charging equipment, and energy products.

Tesla China Shanghai R&D Center Data Center
The Tesla China (Shanghai) R&D centre will likely develop the USD 25,000 compact EV. Image Source: Weibo/特斯拉

The first model Tesla works on at the Chinese R&D centre, officially called Tesla Shanghai R&D and Innovation Centre, should be the USD 25,000 compact EV. Vehicle development at this facility will work on software, materials, electronics, and various other aspects of vehicle development. Tesla has built a data centre to store Chinese customer data locally as well, called Tesla Shanghai Super Factory Data Centre.

Tesla Model 2 release date

Musk has suggested that Tesla won’t skimp on the $25k electric car when it comes to the best of its driving assistance technologies. He confirmed that even the basic Tesla electric car would offer hands-free, autonomous driving. More importantly, he indicated the possible $25k Tesla release date. Below were his words:

I think probably in about three years from now, we are confident we can make a very compelling $25000 electric vehicle that’s also fully autonomous.

Elon Musk, co-founder and CEO, Tesla, in September 2020

Achieving the USD 25,000 target price won’t be easy, but Tesla is bullish on realizing the dream. In addition to lowering the cost of batteries by switching to LFP chemistry, it is considering several other measures for cost reduction on the vehicle side. During the Q1 2021 earnings conference call, Zachary Kirkhorn, CFO, Tesla, said:

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

Kirkhorn suggested that building the USD 25,000 Tesla in higher volumes should help achieve greater economies of scale compared to bigger Teslas. The company is considering manufacturing its most affordable car in four factories around the world.

According to a report from Tencent News, the Tesla Shanghai Gigafactory has reached an annual production capacity of 450,000 Model 3 and Model Y cars per year. In 2020, Tesla had announced a 500,000 unit per year guidance and almost surpassed it delivering 499,550 vehicles. In July, Beijing News reported that the first phase of the Gigafactory had already been built and was ready to start production of the new, low-priced cars. During the second-quarter earnings call, Tesla had already announced that the Shanghai Gigafactory had become its main vehicle export centre.

Tesla has four models on sale – Model S, Model X, Model Y, and Model 3. It has showcased the new Roadster, Semi Truck, and Cybertruck. All models, including the USD 25,000 car, are estimated to meet production by the end of 2023.