Smaller and cheaper Tesla Model 2 priced at half of the Model 3 platform cost is finally in development

After putting the long-teased affordable Tesla model on the backburner in order to finish the development of the Cybertruck electric pickup and the Semi long-haul vehicle, Tesla is finally embarking on the quest to make the sub-US$30,000 electric car it has been promising for a while. Well, at the beginning Elon Musk was promising a $25,000 vehicle, but then came inflation and supply chain snags.

The cheapest Tesla will be built on a new platform, teased Elon Musk during the latest earnings call, that will be gunning to reach half of the Model 3's production costs. Since the Model 3 is currently the cheapest Tesla, the Model 2 or whatever it gets named would have to start in the $25,000-$30,000 range to have a shot at a mass market adoption.

"Obviously, we’re going to take everything we learned from S, X, 3, Y, Cybertruck and Semi into that platform," implied Elon Musk and added that Tesla is on a "2-for-1 target" meaning that it will be trying to halve the new platform costs to produce a vehicle. The purported Model 2 "will be smaller, to be clear," warned Tesla's CEO, but will be the EV pioneer's first mass market vehicle and will probably outsell "all of Tesla’s other vehicles combined."

These promises jibe with what Tesla's investor relations head Martin Viecha said in a recent interview. According to him, the company's overarching goals for the next 5-year period are consistent supply of batteries, which he thinks it has already achieved, and lowering manufacturing expenses by shifting the lion's share of its production to the more efficient Gigafactories in Texas or Berlin.

This time around, however, Tesla will have formidable competitors on the way to mass market EV adoption and it's not only VW. Former Tesla board member Steve Westley said in a CNBC interview that Tesla's main competitor is now BYD which will probably end the year with a million electric vehicles produced, and already has the US$30,000 Seal sedan on the market with specs that surpass those of the Model 3.

Chinese EV giant NIO has also embarked on developing a sub-brand for cheaper, sub-$25,000 electric cars, while both NIO and BYD now sell in the West. Honda, too, aims to have multiple sub-$30,000 EV models in the next 5-year period, so Tesla would have to hurry up with its eventual Model 2 development and launch schedule by 2027. The market might be a totally different ballgame by the time it has finished researching how to cut costs in half with the new platform for a cheap mass market Tesla.

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