Tesla is developing an all-new compact electric SUV significantly smaller and cheaper than the Model Y, according to a Reuters exclusive published on Thursday, citing four people familiar with the matter.
The vehicle — approximately 4.28 metres long, about half a metre shorter than the Model Y — would be produced at Tesla‘s Shanghai factory and priced substantially below the entry-level Model 3, which starts at approximately $34,000 in China and $37,000 in the United States.
Three of the four sources confirmed the Shanghai production plan, with one adding that Tesla aims to eventually expand manufacturing to the United States and Europe.
Immediately after the report, Tesla shares rose 1.5% to $346.45, reversing earlier losses from the first two hours of Thursday’s pre-market trading session.
What Reuters Reported
The compact SUV would be a new vehicle — not a variant or stripped-down version of an existing Tesla model as seen with the Standard models launched last year.
Reuters said suppliers were contacted in recent weeks to discuss the manufacturing process and specifications for various components.
Two sources said Tesla plans to use a smaller battery pack, resulting in a shorter driving range than the Model Y’s 306 to 327 miles.
The vehicle would weigh approximately 1.5 metric tonnes, compared with about two tonnes for the Model Y, and would offer a single electric motor rather than the dual-motor option available on current models.
One source and a Tesla employee said the vehicle could be designed to operate as both a driverless robotaxi and a human-driven car — with optional driving controls for markets where full autonomy will not receive regulatory approval for years.
The employee said preserving the option to build models with or without driving controls could help Tesla keep its factories running near capacity.
The Pattern
On April 5, 2024, Reuters published an exclusive reporting that Tesla had scrapped its long-planned low-cost vehicle — widely referred to as the Model 2 — and would pivot to focus on robotaxis. The report cited three sources and internal company messages, including one from a Tesla manager telling suppliers to “halt all further activities” related to the project.
Musk responded on X within minutes: “Reuters is lying (again).”
He did not identify any specific inaccuracies. Hours later, he posted that the Cybercab robotaxi would be unveiled on August 8.
A subsequent Reuters investigation published in June 2025 reported that senior Tesla executives were alarmed by Musk’s public rejection of the story — because they knew the Model 2 project had been cancelled weeks earlier.
Some managers asked Musk whether his post meant he had changed his mind. He had not. The project remained dead.
Musk’s “Reuters is lying” post helped contain a 6% intraday stock drop to a 3.6% close.
The April 2024 report has since been substantiated. Tesla did not produce the Model 2.
It launched the Cybercab robotaxi concept in October 2024, and its robotaxi service — still limited to Austin, Texas, with human safety monitors in the passenger seat — remains in early operation.
The Broader Record
In September 2025, Musk posted: “Reuters misleads constantly.” In November 2025, he wrote: “Reuters lies relentlessly” and “Reuters is the worst.” In February 2026: “Reuters lies relentlessly.”
In November 2022, he denied a Reuters report that Tesla was considering importing Shanghai-built vehicles to the United States — a claim that has not materialised as of this writing.
As of press time, Musk has not publicly commented on the new report.
Last autumn, Tesla launched stripped-down “Standard” variants of the Model 3 and Model Y at $36,990 and $39,990 respectively in the United States.
JPMorgan analyst Ryan Brinkman maintained his $145 price target on Tesla earlier this week — implying roughly 60% downside from Tuesday’s close of $337 — citing what he described as a persistent gap between the company’s valuation and its automotive fundamentals.
