The automaker will continue to develop self-driving robotics on the same small-car platform, sources said. Tesla has scrapped the long-promised low-cost car that investors are counting on for its growth as a mass-market automaker, according to three sources seen by Reuters familiar with the matter and the company's messaging.

The automaker will continue to develop self-driving robotics on the same small-car platform, sources said. The decision represents an abandonment of a long-standing goal that Tesla chief Elon Musk has often identified as its primary mission: affordable electric cars for the masses. His first "master plan" for the company in 2006 called for building luxury models first, then using profits to finance a "low-cost family car." Shares of Tesla were down about 3% in early afternoon trading after the Reuters report. Musk has since repeatedly promised such a car to investors and consumers. As recently as January, Musk told investors that Tesla plans to begin production of the affordable model at its Texas factory in the second half of 2025, following an exclusive Reuters report detailing those plans. Tesla's cheapest current model, the Model 3 sedan, retails for about $39,000 in the US. The now-defunct entry-level vehicle, sometimes described as the Model 2, was expected to start around $25,000. Tesla did not respond to requests for comment. After the story was published, Musk posted on his social media site X that "Reuters is lying (again)." He did not identify any specific mistakes. The sharp turnaround comes as Tesla faces fierce global competition from Chinese electric vehicle makers that are flooding the market with cars priced as low as $10,000. Plans for unmanned robotaxis, which can take longer to deliver, present a tougher engineering challenge and more regulatory risks.

Two sources said they learned of Tesla's decision to scrap the Model 2 at a meeting attended by a number of employees, one of whom said the gathering took place in late February. "Elon's instructions are to go to Robotaxi," the person said. A third source confirmed the cancellation and said new plans call for Robotaxis to be built, but in much lower volumes than had been anticipated for the Model 2. Messages from several companies reviewed by Reuters about the decision include a March 1 message from an unnamed program manager discussing the project's demise with engineering staff for an affordable car and advising suppliers to refrain from telling suppliers "about canceling the program." A fourth person with knowledge of Tesla's plans expressed optimism about the decision to move away from the cheap-car strategy in favor of robotaxis, in part what Musk envisions as the future of mobility. The source cautioned that Tesla's product plans could change again based on economic conditions. Garnering profits from entry-level vehicles is a challenge for any automaker. But Tesla's delay in pursuing the car Musk once called his dream has made it harder because it now faces a lot of competition in that price range. While Tesla has spent years developing its highly experimental Cybertruck, an expensive electric pickup, Chinese automakers have moved into affordable EVs, capturing market share, achieving economies of scale and offering consumers bargains that Western automakers struggle to match. As Chinese EVs rise to challenge Tesla's dominance, Musk is leaning on his sprawling empire, which includes rocket maker SpaceX, brain-chip developer Neuralink, and social media giant X, which Musk acquired in 2022. Formerly known as Twitter, the platform foundered under Kasturi's troubled management, losing much of its value as the company lost revenue and advertisers. Tesla's plans for affordable prices are seen as key to delivering Musk's stratospheric ambitions for sales growth. Musk said in 2020 that Tesla aspired to sell 20 million cars by 2030 — twice what the world's largest carmaker, Toyota, sells today. With the demise of the Model 2, it's unclear how he'll get there.

Expectations for the $25,000 car underpin Wall Street analysts' more modest, but still ambitious, Tesla sales forecasts. Those forecasts, according to Tesla's investor-relations documents, call for vehicle sales to grow to 4.2 million by 2028, up from 1.8 million last year. Kasturi has previously rocked the project. In a biography of the entrepreneur published last year, author Walter Isakson reported that Musk "put entry-level EV plans on hold" in 2022, arguing that a Tesla Robotaxi would make the car irrelevant.

'Close all subsequent activities'

Tesla called the affordable-car project internally the NV91 and externally the H422 during discussions with suppliers, according to two sources reviewed by Reuters and company messages. Messages from an unnamed Tesla program manager to staff mentioned those code names in discussions about the project's termination. One of those messages, sent on March 1, stated that "suppliers should cease all further activities related to H422/NV91." Sources said they do not know all the reasons behind the decision to kill the project. In another message dated March 1, the manager thanked the engineering staff for their efforts and urged them to document what they learned. "I want to thank everyone for all your hard work and dedication to pushing the boundaries and executing the best possible design for our work under aggressive constraints," the message said. "We don't want all our hard work to go to waste, so it's important that we put things off and document things properly." The messages show that the affordable car project meeting is being cancelled. Some engineers have been reassigned, two sources said. Tesla's timeline and business model for Robotaxis remain unclear. Musk predicts a future of public mobility where driverless taxis may eventually become a more common mode of transportation than human-driven cars. He said Tesla, the world's most valuable automaker, would be "worth basically zero" without achieving full self-driving capabilities. Currently, self-driving cars have only been approved by US and Chinese regulators, for strictly limited, experimental use on public roads. Tesla has yet to prove it can build an autonomous car despite Musk's predictions for years that one was just around the corner, an expectation that partly underpins Tesla's soaring valuation. The automaker faces lawsuits and investigations over crashes involving its Autopilot and fully self-driving driver-assistance systems, which are not fully autonomous. Tesla blamed inattentive drivers for the accident. Tesla's Autopilot issues are among several issues that have drawn scrutiny. The automaker is facing another investigation into its cars' driving-range estimates, after Reuters reported last year that Tesla rigged the in-dash range meters in its vehicles to give rosy estimates. Reuters reported in December that the automaker blamed "driver abuse" for chronic failures of suspension and steering components it had long faulted. Tesla's image as a climate-friendly innovator has also suffered from Musk's leanings toward right-wing politics and polarizing public statements, which have turned away some potential Tesla buyers, according to surveys and experts. The automaker reported an 8% year-over-year drop in deliveries on Tuesday, just after its main Chinese competitor, BYD, reported a 13% gain. Tesla shares fell 5% on the news, deepening a more than 40% slide since last July, amounting to a nearly $400 billion loss in market value. Still, Tesla's market capitalization of $545 billion is greater than the combined value of the next three most valuable automakers, Toyota, Porsche and Mercedes-Benz. Tesla's stock price has long been based on future expectations rather than mass-market sales and current sales and profits of the driverless car. running late Affordable car projects have been shelved as Tesla and other established automakers have been hit by rising EV demand in the US and Europe and cut-throat competition in China. If Tesla had gone ahead with the lower-priced car, it wouldn't have hit the market until the latter half of 2025, according to company estimates. However, the entry-level EV segment is already crowded with attractive models from BYD and many other Chinese brands. Tesla has been delayed in part due to a key decision by Musk. In 2020, after releasing its hit crossover, the Model Y, Tesla focused on the highly experimental Cybertruck rather than an affordable vehicle. Musk unveiled a prototype of the angular, stainless steel-clad truck in 2019 and predicted a starting price of around $40,000. The car finally arrived last year, but the lowest-priced version of the truck won't be available until 2025, priced around $61,000. The company also struggled to work through manufacturing issues, particularly with the truck's pioneering battery technology. Kasturi expects to sell the car in high volumes but last warned investors of "huge challenges" to scale up production and make the car profitable. "We dug our own graves with cybertrucks," he said. During the same period, BYD saw its electric-vehicle sales in China rise, from about 130,000 to more than 1.5 million, not including plug-in hybrids or its fast-growing exports. BYD already has several low- and mid-range mods, including the Seagull hatchback at lower prices