Tesla Plans Smaller Model Y That’s 20% Cheaper To Produce

Not too long ago, Tesla enjoyed near-total dominance over China’s rapidly growing EV market. But with local competitors like BYD quickly rising to global prominence, the American brand now finds itself in a race against increasingly formidable rivals, all of whom are steadily eroding its market share. In response, Tesla is reportedly working on a more affordable version of the current Model Y.

Last year, Tesla set a new record by selling over 657,000 vehicles in China. However, sales have stagnated in early 2025, and a cheaper model could be just what the company needs to regain momentum. According to reports, this new version will be based on the “Juniper” iteration of the Model Y, though some details remain unclear.

Read: Tesla Confirms New ‘Affordable Models’ With Next-Gen Tech For First Half

Chinese site 36KR suggests that this new EV is being developed through a “depop” process—basically a streamlined approach aimed at quickly launching new models with minimal modifications. Meanwhile, Reuters cites three sources familiar with the matter who spoke on the condition of anonymity, as the project is still confidential. According to them, the vehicle is being developed under the project codename “E41” and will be built on existing production lines, with mass production set to begin in 2026.

Base Model Y Or Smaller Model Y?

Reports from China indicate that the base Model Y will be a simpler version, similar to the budget Model 3 Tesla launched in Mexico last year—sacrificing features like vegan leather for cloth seats, removing the second-row touchscreen, and omitting ambient lighting for a roughly $4,000 discount.

However, Reuters’ sources indicate that this new Model Y-based EV will actually be smaller and cost at least 20% less to produce compared to the refreshed version of the crossover, which starts at 263,500 yuan (about $36,500 at current exchange rates) in China.

This cheaper, downsized Model Y may be one of the “more affordable” models Tesla said it was developing back in January. At the time, it said these new models will use aspects of both its next-generation and current platforms.

Made In China, Europe And The US

According to the same inside sources, the cheaper, smaller Model Y-based EV will primarily be targeted for the Chinese market to help Tesla maintain its market share. However, the car will also be produced for Europe and North America ,though there’s no clear timeline for when it will reach those markets.

Despite the competition, the 2025 Model Y appears to be doing well in China. Local reports suggest that Tesla has already received more than 200,000 pre-orders for the electric SUV, and deliveries have already begun.