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NEW YORK — Tesla has canceled the long-promised inexpensive car that investors have been counting on to drive its growth into a mass-market automaker, according to three sources familiar with the matter and company messages seen by Reuters.
The automaker will continue developing self-driving robotaxis on the same small-vehicle platform, the sources said.
The decision represents an abandonment of a long-standing goal that Tesla chief Elon Musk has often characterized as its primary mission: affordable electric cars for the masses. His first "master plan" for the company in 2006 called for manufacturing luxury models first, then using the profits to finance a "low-cost family car."
Musk has since repeatedly promised such a vehicle to investors and consumers. As recently as January, Musk told investors that Tesla planned to start production of the affordable model at its Texas factory in the second half of 2025, following an exclusive Reuters report detailing those plans.
Tesla's cheapest current model, the Model 3 car, retails for about $39,000 in the United States. The now-defunct entry-level vehicle, sometimes described as the Model 2, was expected to start at about $25,000.
'Go all in'
Tesla did not respond to requests for comment. After the story was published, Musk posted on his social media site X that "Reuters is lying (again)." He did not identify any specific inaccuracies.
The stark reversal comes as Tesla faces fierce competition globally from Chinese electric-vehicle makers flooding the market with cars priced as low as $10,000. The plan for driverless robotaxis, which could take longer to deliver, presents a stiffer engineering challenge and more regulatory risk.
Two sources said they learned of Tesla's decision to scrap the Model 2 in a meeting attended by scores of employees, with one of them saying the gathering happened in late February.
"Elon's directive is to go all in on robotaxi," that person said.
The third source confirmed the cancellation and said new plans call for robotaxis to be produced, but in much lower volumes than had been projected for the Model 2.
Several company messages reviewed by Reuters about the decision included one on March 1 from an unnamed program manager for the affordable car discussing the project's demise with engineering staff and advising them to hold off on telling suppliers "about program cancellation."
A fourth person with knowledge of Tesla's plans expressed optimism about the decision to pivot away from the cheap-car strategy in favor of robotaxis, a segment Musk has envisioned as the future of mobility. The source cautioned that Tesla's product plans could change again based on economic conditions.
Squeezing profits from entry-level vehicles is a challenge for any automaker. But Tesla's delay in pursuing the car Musk once called his dream made it much tougher because it now faces far more competition in that price range.
While Tesla spent years developing its highly experimental Cybertruck, a pricey electric pickup, Chinese automakers have raced ahead on affordable electric vehicles, grabbing market share, gaining economies of scale and offering consumers bargain prices that Western automakers are struggling to match.
Expectations for a $25,000 vehicle have underpinned Wall Street analysts' more modest, but still ambitious, forecasts for Tesla sales. Those forecasts, according to a Tesla investor-relations document, call for vehicle sales rising to 4.2 million by 2028 from 1.8 million last year.
Musk has wavered on the project before. In a biography of the entrepreneur released last year, author Walter Issacson reported that Musk in 2022 "put a hold on" the entry-level electric vehicle plans, reasoning that a Tesla robotaxi would make the car irrelevant. Musk's advisers urged him to stay the course, the book said.
'Halt all further activities'
Tesla called the affordable-car project NV91 internally and H422 externally when discussing it with suppliers, according to two of the sources and company messages reviewed by Reuters.
Messages from the unnamed Tesla program manager to staffers referenced those code names in discussing the project's termination. One of those messages sent March 1 said that "suppliers should halt all further activities related to H422/NV91."
The sources said they did not know all the reasons behind the decision to kill the project.
In another March 1 message, the manager thanked engineering staffers for their efforts and urged them to document what they had learned.
"I'd like to thank everyone for all your hard work and dedication to pushing boundaries and executing the best design possible given the aggressive constraints we had to work within," the message said. "We would not want all our hard work to go to waste, so it's important that we tie things off and document things properly."
The messages showed meetings on the affordable-car project being canceled. The two sources said some engineers have been reassigned.
Tesla's timeline and business model for robotaxis remain unclear. Musk has publicly predicted a future of mobility in which driverless taxis could eventually become a more common mode of transport than human-driven cars. He has said Tesla, the world's most valuable automaker, would be "worth basically zero" without achieving full self-driving capability.
Currently, self-driving cars have only been approved by U.S. and Chinese regulators for tightly limited, experimental use on public roads.
Running late
The affordable-car project's cancellation comes as Tesla and other established automakers have been rocked by slowing electric vehicle demand growth in the United States and Europe, and cutthroat competition in China.
If Tesla had moved forward with the low-cost car, it wouldn't have arrived on the market until the latter half of 2025, by the company's estimate. But the entry-level electric vehicle segment is already crowded with compelling models from BYD and many other Chinese brands.
Tesla is late to the segment in part because of a pivotal decision by Musk. In 2020, after releasing its hit crossover, the Model Y, Tesla focused on the highly experimental Cybertruck instead of an affordable car.
Musk unveiled a prototype of the angular, stainless steel-clad truck in 2019 and predicted a starting price of about $40,000. The vehicle finally arrived last year, but the lowest price version of the truck won't be available until 2025, at a price of about $61,000.
The company has also struggled to work through manufacturing problems, particularly with the truck's pioneering battery technology. Musk hopes to sell the vehicle in high volumes but warned investors last fall about "enormous challenges" ramping up production and making the vehicle profitable.
"We dug our own grave with the Cybertruck," he said.
During the same period, BYD has seen its electric-vehicle sales soar in China, growing from about 130,000 to more than 1.5 million, not including its thriving business in plug-in hybrids or its fast-growing exports.
BYD already offers a slew of low- and mid-range models, including its Seagull hatchback for less than $10,000. The Chinese automaker now plans to export that car for more than double that price — but still lower than the target for the cheap car Tesla had planned to build.
