Affordable Tesla ‘Model 2’ electric hatchback is coming

It appears we’re going to have to wait a little longer before Tesla’s long-awaited affordable electric family hatchback makes its grand entrance. CEO Elon Musk was expected to reveal the brand’s new entry-level EV during the 2023 Investor Day event held at Tesla’s Gigafactory Texas, instead providing only a few insights into the manufacturing and technology behind the as-yet-unnamed ‘next-generation’ vehicle.

After reaffirming that the ever-delayed Tesla Cybertruck would enter production this year, executives revealed that lessons and techniques learned from its manufacturing and construction, as well as the Model Y SUV’s production process, would be applied to the next-generation car – with the goal of reducing costs by as much as 50%. 

No rare earth materials will be used in the new vehicle’s motor, according to Tesla’s powertrain boss Colin Campbell, who added that the new model’s powertrain is compatible with any battery chemistry for better flexibility when it comes to sourcing.

Tesla is still aiming to be able to produce the new car for half the cost of the current Model 3 saloon. But in addition to being more affordable to buy, CFO Zach Kirkhorn said the total cost of ownership for the baby Tesla per mile over five years will be significantly less than a base Model 3 or Toyota Corolla.

Finally, it was announced the next-generation vehicle will be produced at the new Tesla Gigafactory in Mexico, near Monterrey, but production will take place at some of its other plants as well.

A cheaper Tesla has been rumoured to be in development for years, and would sit below the maker’s popular Model 3, rivalling the likes of the Volkswagen ID.3, Cupra Born and MG4 EV – the latter our reigning Car of the Year, and Best Value Electric Car for 2023.

No official images have surfaced yet, but sketches of what appears to be Tesla’s smallest and cheapest model yet were featured in a video the brand shared recently. Among them is a side-profile of what looks like the cut-price Tesla, featuring extremely short overhangs at the front and rear, and a sloping roofline. Another is a concept drawing that first surfaced back in 2020 (above) previewing the company’s first compact electric car, with the design closely resembling that of the Tesla Model Y.

Other than this concept art, details about Tesla’s entry-level EV remain out of reach. Even the potential new car’s name is still firmly under wraps – despite internet speculation suggesting the Tesla Model 2 badge could be used. However, CEO Elon Musk did share in an earnings call last year that the new model is “the primary focus of our new-vehicle development team. We’re going to take everything we learned from [Models] S, X, 3 and Y, the Cybertruck and the Semi into that platform.”

Musk has also stated “the next-generation vehicle that will be about half the cost of the Model 3 and Y platform. It will be smaller, to be fair, but I think it will shortly exceed production of all our other vehicles combined.” 

Simplifying and cutting costs from the production process will also be key to ensuring the new model is affordable, though we have seen Tesla pull this off recently with the Model Y, whose bare construction costs significantly less than the Model 3’s. Tesla’s choice of battery size and chemistry will also be a determining factor in the car’s price. 

We expect the sub-Model 3 EV will come in around £25,000 – the same price range as the MG4 EV and the forthcoming Fisker PEAR. We expect the new baby Tesla to arrive sometime around 2025, though Musk himself has said “we don’t want to talk exact [launch] dates” at this stage. 

This is most likely because the brand has just begun deliveries of its Semi electric lorry and is due to finally put the repeatedly delayed Tesla Cybertruck pickup and Roadster supercar into production later this year. There have also been reports of an updated version of the Model 3 coming soon, which will focus on cutting production costs and boosting the appeal of the now five-year-old saloon, and speculation about a facelift for the Model Y. 

Despite being facelifted some time ago, the first examples of the updated Tesla Model S and Model X have yet to arrive in the UK either, and the company currently has no timeline for when they will. It did update both models' configurators recently, however, with customers now given the choice of a regular round steering wheel or a steering yoke, which was the only option listed before.