Smaller Tesla Model Y E41 that will be much cheaper to make is set to launch in the US

The cheaper Model Y Juniper refresh that Tesla is reportedly planning for late 2025 release has now been fleshed out in more details, but the launch timeframe has shifted to 2026.

According to sources inside Tesla's supply chain, it will be smaller than the new Model Y facelift, and cost 20% less to manufacture at the Shanghai Gigafactory, which will get its orders first.

The smaller, cheaper Model Y project is dubbed E41 internally, as Tesla is ditching codenames like "Juniper" or "Highland", and has only assigned it numbers and letters now, like the NV9X project that birthed its Cybercab two-seater.

The previous rumors claimed that the E41 won't be a downgrade in terms of battery capacity or drivetrain, so the cost cuts must be coming from the smaller size and a stripped-down interior. That's what Tesla did with the RWD Model 3 in Mexico, for instance, which ships with cloth seats without heating or ventilation, and some other comfort sacrifices.

The smallest, cheapest Model Y version will reportedly also be made in North America and Europe, which might explain the camouflaged prototype that was spotted during a Giga Texas drone overflight not long ago.

It looked like a shrunken Model Y, sowing some confusion regarding the cheapest Tesla, tentatively dubbed Model 2, that Elon Musk and Lars Moravy said is coming later this year, since the Model 2 is expected to look like a miniaturized Model Y, too, rather than a hot hatch.

When Elon Musk inferred at one of the quarterly calls that the cheapest Tesla Model 2 will be "smaller, to be certain," he probably meant the Model 3, but now that Tesla is working on the E41 Model Y, all design prediction bets are off.

Alternatively, the Model 2 could be an even more bite-sized version of the Model Y than the E41, with a smaller battery this time, which would allow Tesla to hit the sweet $20,000-$25,000 price range with potential subsidies. According to Tesla's lead engineer Lars Moravy, "the most difficult part of doing that is not making the cars worse, so I promise that they won't be a massive step-down from the cars we sell today."

In any case, Tesla is preparing the smaller, cheaper Model Y mainly as an insurance against the rising EV tide in China, where BYD, NIO, and even Xiaomi are coming up with formidable competitors that cost less and offer more than the new Model Y.

This explains the tentative 2026 release date, as Tesla could probably coast on the Model Y Juniper refresh demand for a couple of quarters thanks to early adopters and customers looking to upgrade their aging Model Y.

Tesla is only selling the $60,000 Launch Series Juniper edition in the US now, and there are only inventory units of the old Model Y on sale. It is still to release the new Model Y in RWD and AWD versions that don't come bundled with FSD, so it is early to predict what price a smaller Model Y E41 would launch at if and when it appears in the US.

In China, the cheapest Model Y refresh now starts from the equivalent of $36,300. Considering Tesla's margins, a 20% manufacturing cost cut should start off the E41 project at way below $30,000, which would make it very competitive, even when facing BYD, NIO, or Xiaomi's models there.

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