Tesla's Cheaper EV Is 'Just A Model Y,' Musk Says

Tesla's more affordable model started production in June and is a cheaper Model Y, the company said on its Q2 earnings call.

2025 Tesla Model Y Juniper

Photo by: Tesla

Tim Levin

By: Tim Levin

Updated: Jul 23, 2025 at 7:35pm ET

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Tesla kicked off "initial production" of its more affordable electric vehicle in June, the company said on Wednesday.
The model is "just a Model Y," Tesla CEO Elon Musk said on Wednesday.
Tesla's car sales have been sliding for months, underscoring the need for a fresh product.

Tesla's long-awaited, mysterious cheaper model won't be a new model at all—but rather a version of the Model Y crossover.

"It's just a Model Y," Tesla CEO Elon Musk said in response to an analyst's question about what the car will look like on the company's earnings call on Wednesday. "Let the cat out of the bag there."

The new, lower-cost addition to Tesla's lineup that the company has been teasing for over a year has been widely seen as a potential cure to the company's sagging sales. It's less obvious how significant a more affordable trim of an existing model will be for Tesla's future growth.

Tesla started "initial production" of the vehicle in June and expects to kick off mass production in the back half of 2025, the company said in its second-quarter earnings release on Wednesday.

"We continue to expand our vehicle offering, including first builds of a more affordable model in June, with volume production planned for the second half of 2025," Tesla said.

On Tesla's quarterly earnings call Wednesday afternoon, Lars Moravy, its vice president of engineering, indicated that production of the model won't meaningfully ramp up until the end of the year. He said the company will "keep pushing hard on our current models to avoid complexity" in the third quarter, seeing as the EV tax credit is going away on Sept. 30. He said the more affordable model will be "available for everyone" in Q4.

What Is Tesla's Cheaper Car?

What exactly that cheaper Tesla is has been a mystery for months. Musk's comments help to clear that up.

It doesn't seem like the cheaper model will be anything like the so-called "Model 2" that's been rumored for years—ever since Tesla said it planned to release a $25,000 car. It won't be a smaller hatchback or a brand-new form factor for the lineup. Instead, Musk's comments suggest that it will be a Model Y, by far Tesla's best seller, but with more basic features or cheaper materials.

That also lines up with reporting from Reuters earlier this year, which detailed a smaller, cheaper Model Y variant in the works with the internal codename E41.

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"The desire to buy the car is very high. Just people don't have enough money in their bank account to buy it. Literally, that is the issue. Not a lack of desire, but a lack of ability," Musk said on Wednesday. "So the more affordable we can make the car, the better."

Today, the Model Y starts at $44,990 for the Long Range Rear-Wheel Drive trim. That's before the $7,500 EV tax credit.

Under pressure from weakening sales of its core models, last year Tesla announced that it would launch new products, including "more affordable models," in the first half of 2025. June came and went without an announcement or a new model reveal. And Tesla executives have been cagey about whether the models would be brand-new cars or variations of existing ones.

Tesla has said that the cheaper models will be built on the same production lines for the Model Y and Model 3, suggesting they would be related to those vehicles. On Tesla's first-quarter earnings call, Moravy said that "the models that come out in the next months will resemble in form and shape the cars that we currently make." Now Tesla has finally come out and said it: It's a Model Y.

Tesla Model Y

The refreshed Tesla Model Y.

Photo by: Tesla

Tesla launched a cheaper Model 3 sedan with cloth seats in Mexico last year. It's still unclear what exactly will make this new Model Y variant cheaper to produce, but Tesla could take a similar tack of building it with cheaper materials or a smaller battery.

Tesla released a slightly extended Model Y L with a larger third row in China this year.

Why Tesla Needs A More Affordable Model

After years of rocket-ship growth, the electric automaker has lost steam due to stiffer competition and its CEO's controversial politics. The company's deliveries have dropped significantly this year, and it would need to string together a pair of record quarters just to match 2024's figures.

Experts say it's clear that new models, and especially lower-priced ones, are the only way for Tesla to get into growth mode again. Just look at the sprawling lineups of the world's biggest auto companies like General Motors, Toyota and Volkswagen, all of which sell four or five times as many cars annually as Tesla does.

Tesla, meanwhile, is extremely reliant on sales of the Model 3 and Model Y, which are popular but seem to have hit a ceiling. Its last brand-new model, the Cybertruck pickup, is niche at best and isn't hitting nearly the 250,000 units per year that Elon Musk predicted. (Its sales dropped by about half last quarter, to around 4,300 units.)

The end of EV tax credits at the end of September will hit sales of all EVs. And appetite for electric cars in the U.S. hasn't been growing as quickly as in years past. So that cheaper model can't come soon enough.

A lower entry price for the Model Y—say, $35,000—could certainly expand Tesla's customer base. But will a stripped-down version of an existing and ubiquitous car be enough to conquer all of those headwinds and get Tesla growing again? That'll be the big question going forward.

Contact the author: Tim.levin@insideevs.com.

Updated 3:15 P.M. PST with comments from Tesla's earnings call.

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Updated 3:45 P.M. PST with information from Tesla's earnings call that the new model will be a Model Y.

Updated 4:30 P.M. PST with additional background information on the cost of a Tesla Model Y.

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