Tesla pushes back cheaper Model Y, eyes budget-friendly Model 3 launch instead

Tesla has delayed production of its highly-awaited low-cost variant of the Model Y, instead accelerating development on a bare-bones version of the Model 3 sedan, according to a recent Reuters report. This tactical shift follows as the maker of electric vehicles struggles with decelerating sales and mounting pressure to expand its base of customers.

Internally codenamed E41, the budget-friendly Model Y was originally slated for production in the U.S. in the first half of 2024. However, the report stated that sources familiar with the company’s operations now say production could be delayed until late 2024 or even early 2025.

Tesla had planned to offer this car as a more affordable version of its top-selling SUV, hoping to produce some 250,000 units a year in the U.S. by 2026. Even with the setback, the Model Y variant is still likely to be made later in China and Europe, although launch schedules are unclear.

In the meantime, Tesla is reorienting its attention to a simplified version of its Model 3. The decision appears to be a pragmatic one as the automaker seeks to introduce an affordable EV without having to create an entirely new platform. While details are not yet public, it seems logical that the bare bones Model 3 will be cheaper and faster to produce considering Tesla's sedans process facilities.

Sales pressure and market realities

The decision comes at a crucial time. Tesla’s vehicle lineup is aging, and its promise of a $25,000 EV based on a new platform has been shelved in favor of autonomous “robotaxi" development. Meanwhile, consumer demand has cooled, and Tesla recently reported its first annual decline in deliveries—a troubling sign for a company that once set the pace for the global EV industry.

Some of the company's challenges are also related to reputational issues connected to CEO Elon Musk's political stances, which experts believe may impact public sentiments. Global tariffs are increasing and supply chain uncertainty—especially with respect to future U.S. trade policy—are creating added challenges for the carmaker.

Nevertheless, Tesla is attempting to protect itself from geopolitical risk by using more North American content and improving logistics strategies, such as stopping some deliveries between China and the United States.

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