After years of speculation and vague promises, Tesla has finally confirmed its plans for a more affordable EV. During the company’s Q2 2025 earnings call, Elon Musk put the rumors to rest: the long-awaited budget-friendly Tesla is on the way. But in a twist, it’s not an entirely new model, it’s actually a stripped-down version of the Model Y.
Those hoping for a compact electric car from scratch might be disappointed. Instead, Tesla is taking its best-selling midsize SUV and scaling it down to create a more accessible version beneath the current Long Range Model Y. The strategy should be to cut costs by cutting features, and make Tesla’s most popular model available to a broader audience.
Reports suggest this entry-level Model Y will ditch many of the luxury touches found in higher trims. We’re talking about single-motor RWD setup, smaller or more affordable battery tech, and a simplified cabin. No heated rear seats, no rear climate vents, no active noise cancelation, no HEPA filter, and no 120-volt power outlet. Expect cloth seats instead of vegan leather and a more basic infotainment system. In short, it’s a Model Y built for efficiency and value. Tesla says production started in June, with the new version expected to launch within Q3 2025.
Meanwhile, Musk doubled down on Tesla’s push into robotaxi services, announcing plans to expand pilot programs in Texas, California, Arizona, and Florida. The Cybercab, Tesla’s purpose-built autonomous ride-hailing vehicle, aims to significantly lower cost-per-mile and scale up the service by 2026. It could be a key driver of growth, especially after a tough quarter: automotive revenue dropped 16% year-over-year, while operating income fell 42%.
Tesla’s rough patch stems from multiple factors, phased-out EV tax credits, rising tariffs on materials, and political controversy surrounding Musk himself. He even acknowledged concerns about his role as CEO, referencing “activist shareholders” calling for leadership changes. A budget-friendly Model Y may help reignite demand.
