Tesla has already built a prototype of its affordable model, and mass production will be achieved in the second half of the year.

【PCauto】During Tesla’s latest quarterly earnings call, CEO Elon Musk delivered a key update: the company has already produced a prototype of its upcoming affordable electric vehicle as of June 2025. Musk confirmed that mass production is scheduled to begin in the second half of 2025, with a market launch expected in Q4.

A Budget-Friendly Version of the Model Y

According to Reuters and Musk’s own remarks during the call, the new vehicle—codenamed Redwood—will be positioned as a compact crossover. When asked about its appearance, Musk replied candidly, “It looks like a Model Y.”

This clearly indicates the new model’s close connection to Tesla’s current best-seller, the Model Y. Widely reported as a strategic move, this vehicle is expected to target a broader, more price-sensitive customer base, with a projected starting price of around $25,000 (105,400 MYR at current exchange rates).

To hit this competitive price point, the vehicle is expected to be around 15% smaller than the Model Y in terms of overall size—part of Tesla’s broader cost-optimization strategy.

特斯拉加州工厂出现的伪装车，图源 Electrek

New Manufacturing Process to Significantly Cut Production Costs

To achieve large-scale production and meet cost targets for the Redwood model, Tesla plans to manufacture the vehicle simultaneously at its Gigafactory in Texas and the new plant under construction in Mexico.

At the core of this affordability strategy lies Tesla’s innovative “unboxed” manufacturing process. This new production method is expected to reduce vehicle manufacturing costs by as much as 40%, providing the technological foundation that allows Tesla to price the entry-level model at around $25,000 while still maintaining profitability.

Tesla CFO Vaibhav Taneja also noted during the call that while production ramp-up for the new model is expected to accelerate in the next quarter, it will be “slower than initially anticipated,” signaling that mass production will still require time to scale.

Equipped with LFP Battery and Simplified Autopilot

In terms of technical specifications, sources including Tesla-focused outlet Teslarati report that the Redwood model is expected to feature lithium iron phosphate (LFP) batteries—known for their lower cost and robust safety. The target driving range is set between 250 to 300 miles (approximately 402 to 483 kilometers), which is adequate for daily commuting and urban use.

To align with the vehicle’s budget-friendly positioning, the new model will come with a simplified version of Tesla’s Autopilot system, rather than the more advanced Full Self-Driving (FSD) package. This means it will offer basic driver assistance features such as adaptive cruise control and lane-keeping assist, while more complex autonomous capabilities may be offered as optional upgrades—or not included initially.

Push for Affordable Model Driven by Declining Sales

Tesla’s decision to accelerate the rollout of its entry-level model is closely tied to its current market challenges. The company’s Q2 2025 financial report revealed an 8% year-over-year drop in global vehicle deliveries—its steepest quarterly decline in over a decade.

At the same time, the global EV market—especially in the critical Chinese market—has grown increasingly competitive. Rivals such as BYD, Geely, Xiaomi, and NIO continue to launch aggressively priced electric vehicles, fueling an ongoing price war.

Even within Tesla’s own lineup, the starting price of the Model 3 in China has dropped to around RMB 250,000(148,000 Malaysian ringgit). Meanwhile, Elon Musk’s polarizing political stance has led to backlash among certain consumers in the U.S., further complicating domestic sales. Adding to the pressure, regulatory credit revenue declined 51% year-over-year, affecting Tesla’s overall income and profitability.

Tesla Likely to Face Several Challenging Quarters Ahead

Elon Musk candidly acknowledged that Tesla may experience “a few tough quarters,” potentially spanning from Q4 2025 to Q2 2026. He emphasized that the company’s long-term growth hinges on two core technologies: its Full Self-Driving (FSD) software and the Cybercab robotaxi service.

During the earnings call, Musk revealed that Tesla is actively seeking regulatory approvals across multiple U.S. states, aiming to launch its autonomous ride-hailing service to cover about half of the U.S. population by the end of this year. He projected that widespread deployment of Robotaxi services and FSD software could begin contributing significant revenue in 2026, particularly in the second half of the year. Additionally, Tesla plans to begin mass production of its Semi Truck electric vehicle in 2026, further diversifying its commercial EV portfolio.

Finally

Despite Elon Musk confirming the completion of the “Redwood” budget model prototype, its pilot production in June, and the timeline for mass production in the second half of the year — along with revealing its Model Y–like design — Tesla has yet to release official details on the final pricing, full specifications, exact global launch date, and initial production targets.

Whether this highly anticipated, affordability-focused model — expected to boost sales and expand Tesla’s user base — can overcome the challenges of cost control, production ramp-up, and intense market competition remains a key question. Its performance will likely become a central focus of the global EV industry in the coming quarters, as Tesla seeks to reverse its current growth slowdown.