Tesla’s Q2 2025 earnings call revealed a major strategic reveal. The EV maker has announced that production has begun on a new, lower-cost electric vehicle, described as a Model Y look-alike, with deliveries expected in Q4 2025.
“Plans for new vehicles that will launch in 2025 remain on track, including initial production of a more affordable model in 1H25,” the company noted in its shareholder letter.
Musk has already confirmed that “production of our long‑anticipated affordable EV, which will resemble the Model Y,” has already started.
The vehicle is expected to reach the showrooms by Q4 2025, as previously advised by VP Moravy.
This strategy will be based on the existing platforms (Model 3/Y) and a developing next-generation architecture, and would utilize the current lines to the fullest extent possible, resulting in the greatest cost-efficiency.
Financials: Pressure Amid Strategy Shift
Tesla reported a 12% decline in revenue compared to 2024, totaling $22.5 billion, and a 16% decrease in net income to $1.17 billion in Q2 2025. Vehicle sales dropped by ~14% to 384,122 units, and automotive revenue ~19% to $16.6 billion.
The EPS registered 0.40, which was almost in line with expectations.
The regulatory credit revenue has dropped by ~50% and wiped out a large source of revenue profit tailwind of $439 million.
The free cash flow dropped to about $100 million, which shows the increased pressure on margins.
🔥🔥 Tesla started production of a more affordable model in the first half of 2025 and will launch it later this year!
“Plans for new vehicles that will launch in 2025 remain on track, including initial production of a more affordable model in 1H25.”
📸: @DominicBRNKMN pic.twitter.com/9SNiLYGKpv
— Tesla Newswire (@TeslaNewswire) July 23, 2025
Near‑Term Headwinds: Incentives, Competition, Controversy
Sales pressure is likely to emerge in Q3, with the mid-year expiry of the U.S. The EV tax credit threatens to put up a strain on the EV market, as Musk warned about a strange transition period and a few bad quarters to come.
The world is becoming extremely competitive. It is not uncommon to see Chinese EV manufacturers such as Xiaomi and BYD release competitive models at low prices, which are selling at a fast pace. Political, reputation-related aspects, such as the connection of Musk to the Trump administration, were also identified as possible barriers to customers.
Timing and Market Implications
The vehicle’s expected launch in Q4 2025 comes at a critical moment. Tesla has faced slowing demand and pricing pressure across various markets around the globe. A cheaper car might open up an immensely larger proportion of lower-price-elastic consumers, particularly in developing countries and urban areas that want smaller cars.
Industry analysts believe Tesla’s move to accelerate the timeline reflects both technological readiness and market necessity.
“Tesla is under pressure to deliver volume without sacrificing margins,” said Daniel Ives of Wedbush Securities. “This affordable EV is key to Tesla’s growth story in 2026 and beyond.”
Consumer Expectations
Though no pricing has been officially revealed, the car is likely to have a starting price of between $25,000 and $30,000, meaning that this will become one of the cheapest long-range EVs in the global market. Over and over, however, Musk has argued that affordability is the missing piece of the puzzle when it comes to EV adoption.
It is also expected that Tesla will manufacture the new model at several gigafactories, some of which are located in Austin and Texas, which would again allow the corporation to minimize expenses and adjust production capacities around the globe as promptly as possible.
