Tesla’s Next Electric Car Will Be A Budget-Friendly Version Of The Model Y

Tesla has confirmed its next new electric vehicle won’t be an all-new design, but rather a cost-effective take on its popular Model Y SUV. CEO Elon Musk made the revelation during the company’s second-quarter investor call, saying the upcoming model is “just a Model Y” that will be made cheaper to produce and more accessible to buyers.

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A Focus on Affordability

Musk explained that demand for the Model Y remains very strong. However, he said the real barrier for many potential buyers is the cost. “People want to buy the car, but they don’t have enough money in their bank account. That’s the issue,” Musk said. “So the more affordable we can make the car, the better.”

Tesla hopes to address this challenge by simplifying the vehicle and reducing production costs. According to Musk, the streamlined Model Y will allow a wider range of customers to enter the Tesla ecosystem without compromising the core benefits of electric driving.

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Production Plans Underway

Tesla has already started early production of the new budget Model Y, with volume manufacturing expected to ramp up in the second half of 2025. The vehicle, reportedly codenamed E41, is currently being developed in the US. Reports suggest Chinese production could follow, with a local launch in 2026.

Though details remain limited, insider reports have indicated the vehicle will feature a slightly smaller body than the existing Model Y and will cost around 20% less to build.

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What Could Be Cut?

If recent leaks and international market trends are anything to go by, the new model may strip back some premium features. A similar approach was taken with a low-cost Model 3 variant sold in Mexico, which swapped out leatherette seats for cloth, removed the rear touchscreen, and reduced cabin luxuries such as ambient lighting and seat ventilation.

Spy photos of a prototype also hint at some changes to the roof structure. Unlike the glass roof standard on current Model Ys, the cheaper version appears to have a fixed metal roof. Its body is also slightly shorter, but the wheelbase remains unchanged.

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Could It Land in Australia?

A lower-cost Model Y could potentially arrive in Australia as early as 2026, depending on production capacity and local demand. With the current Model Y Rear-Wheel Drive priced at $58,900 before on-road costs, a 20% reduction could bring the price down to around $47,000, putting it in a more competitive space in Australia’s growing EV market.

However, it’s still unclear if all of the manufacturing savings will be passed on to buyers or how the vehicle will be positioned against local competitors.

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Looking Ahead

Tesla’s move to create a cheaper Model Y reflects the broader shift in the EV industry, where carmakers are under pressure to provide more affordable electric options. With increased competition from brands like BYD, MG, and Kia in the budget-to-mid-range EV market, Tesla’s simplified SUV could be a strategic step to protect its market share in Australia and beyond.