Tesla is developing a new compact electric SUV priced below the Model 3, according to a Reuters report citing four people familiar with the project, effectively reversing the company's 2024 decision to kill the affordable Model 2 [1].

The vehicle is being designed at Tesla's Shanghai engineering center, with production planned for the same factory. Sources told Reuters the target price would fall below $34,000, positioning it to compete with Chinese electric vehicles that have dominated the affordable EV segment while Tesla focused on robotaxis and full self-driving.

The reversal is striking. In April 2024, Elon Musk scrapped the Model 2 program, arguing that Tesla's future lay in autonomous vehicles rather than cheap cars for human drivers. At the time, Musk redirected engineering resources toward the Cybercab robotaxi, which was unveiled six months later to mixed reviews.

Two years on, the math has changed. Tesla's global deliveries declined for the first time in the company's history in 2025, dropping roughly 10 percent year-over-year. The stock has fallen more than 40 percent from its December 2024 highs. Meanwhile, Chinese automakers like BYD have captured enormous market share with vehicles priced between $10,000 and $25,000.

The compact SUV project represents an implicit acknowledgment that the robotaxi bet has not moved fast enough to offset declining sales of Tesla's existing lineup. The company still has no timeline for commercial robotaxi deployment.

Tesla did not respond to requests for comment. No launch date for the compact SUV has been announced, though sources indicated prototyping is underway.

-- THEO KAPLAN, San Francisco