Tesla $25K EV Canceled? Focus Shifts Towards Affordable Model 3 & Y

Tesla has reportedly moved away from its long-anticipated $25,000 electric vehicle (EV), often dubbed the Model 2, with the company now prioritizing more affordable versions of its Model 3 sedan and Model Y compact SUV. This strategic pivot, detailed in a Reuters report, has sparked internal debates among Tesla executives and raised questions about the company’s direction in the competitive EV market.

Internal Confusion Surrounding the $25,000 EV Project

The $25,000 EV was intended to broaden Tesla’s customer base by offering a lower-cost option, but the project’s status remains unclear. According to the Reuters report, Tesla CEO Elon Musk had already canceled the Model 2, despite his public denial on April 5, 2024, when he posted on X, “Reuters is lying,” following the initial report of the cancellation. This statement led to a 6% drop in Tesla’s stock, which later closed down 3.6% that day.

Internally, Musk reportedly confirmed to executives that “the project was still dead,” as per sources familiar with the matter, causing confusion among senior managers who questioned why he had changed his stance. However, neither Musk nor Tesla has explicitly confirmed the cancellation of the $25,000 EV project.

The lack of official confirmation, combined with Musk’s denial, leaves room for uncertainty about whether the project is truly terminated or merely deprioritized. Tesla’s history of shifting timelines, as seen with projects like the Cybertruck, which took five years from announcement to delivery, suggests that plans could still evolve.The lack of official confirmation, combined with Musk’s denial, leaves room for uncertainty about whether the project is truly terminated or merely deprioritized. Tesla’s history of shifting timelines, as seen with projects like the Cybertruck, which took five years from announcement to delivery, suggests that plans could still evolve.

New Direction: Cost-Reduced Model 3 and Model Y

Tesla is now focusing on producing stripped-down versions of the Model 3 and Model Y, set to launch in the first half of 2025. These vehicles aim to lower the entry price below the current $42,500 starting cost of the Model 3, making Tesla more competitive in the mass market.

Engineering chief Lars Moravy highlighted this approach during an April earnings call, stating, “The key is they’ll be affordable, and you’ll be able to buy one.”

By leveraging existing production lines and reducing features—potentially including smaller battery packs or fewer luxury options—Tesla can cut costs without developing an entirely new platform. This shift makes practical sense from a manufacturing perspective. The Model 3 and Model Y share a platform, allowing Tesla to streamline production and reduce expenses.

However, some investors, like Gary Black of The Future Fund LLC, are skeptical. Black, who sold his fund’s $1.2 million Tesla position, told Reuters, “The affordable new vehicle will be a ‘stripped down Model Y’ rather than a ‘differentiated product,’” suggesting it may not meet expectations for a truly innovative low-cost EV.

Competitive Pressures and Regulatory Risks

Tesla’s pivot comes amid intensifying competition, particularly from Chinese automaker BYD, which overtook Tesla in Europe in April 2025. BYD’s Seagull hatchback, priced below $10,000 in China and roughly double that in Europe, has captured significant market share. Tesla’s sales have also weakened, with a 13% decline in the first quarter of 2025 following its first annual sales drop in 2024, reflecting broader challenges in the EV market.

Internally, some Tesla executives expressed concern that Musk’s public denial of the $25,000 EV cancellation could attract scrutiny from the Securities and Exchange Commission (SEC). Musk’s 2018 SEC settlement, which imposed a $40 million fine for misleading investors via a tweet, requires his company-related posts to be vetted by a lawyer—a rule he has reportedly disregarded. The lack of clarity on the Model 2’s status could further erode investor confidence if perceived as misleading.

While Tesla’s focus on more affordable Model 3 and Model Y variants may help it compete in the short term, the absence of a clear commitment to a $25,000 EV leaves uncertainty for enthusiasts and investors hoping for a transformative entry-level model to drive mass adoption.

Featured Photo courtesy of Reuters