Tesla’s highly anticipated affordable electric vehicle — a pared-down version of its best-selling Model Y SUV — will not hit the U.S. production lines as early as expected, sources familiar with the matter told Reuters.
The new lower-cost Model Y, internally codenamed E41, was slated for a production rollout in the first half of 2025. However, revised internal targets now push that timeline to the third quarter or even early 2026, signaling a significant delay for Tesla’s much-hyped budget EV.
While the reason behind the delay remains unclear, three sources with direct knowledge of the plans confirmed that the vehicle will eventually be produced in the U.S., followed by China and Europe. Reuters had earlier reported the E41’s China debut would occur in 2026.
Tesla had promised the rollout of more affordable EVs this year to revitalize sluggish sales and retain its competitive edge as rivals flood the market with cheaper alternatives. The company, which recently refreshed its original Model Y, continues to rely heavily on its flagship models while its long-promised budget EV platform has yet to materialize.
Two sources revealed that Tesla plans to manufacture around 250,000 units of the cheaper Model Y in the U.S. in 2026, though this production goal has not been officially acknowledged by the company.
The E41 is expected to be smaller and 20% cheaper to produce than the current Model Y Long Range All-Wheel Drive variant, which retails at about $49,000 before a $7,500 federal tax credit.
In addition to the E41, Tesla is also working on a bare-bones Model 3 compact sedan, aimed at appealing to budget-conscious customers in global markets.
Tesla’s delay comes at a time when the company is under pressure from multiple fronts — including declining deliveries, increased competition, and political backlash stemming from CEO Elon Musk’s association with Donald Trump and far-right figures in Europe.
On January 2, Tesla reported its first annual decline in deliveries, and analysts anticipate another drop this year. Compounding the challenge are aging vehicle models and no affordable entry-level option, which analysts believe is hindering broader adoption.
Musk had previously teased a $25,000 EV platform but pivoted towards developing a robotaxi fleet instead, deprioritizing the affordable car initiative.
Complicating matters further are the recent 25% tariffs imposed by Trump on vehicles and auto parts from outside the U.S., prompting Tesla to increase domestic sourcing and suspend shipments of components from China for its Cybercab and Semi truck, according to sources.
