Tesla Model 2 will be small version of Model Y, could hit 700k sales in 2025, analysts say

Tesla’s much anticipated next model, often referred to as the Model 2, may not be far away: Analysts predict it will be a smaller version of the Model Y electric crossover and say Tesla could deliver 700,000 units as early as 2025.

Speculation about the Model 2 has intensified since Tesla revealed earlier this year that it is working on its 3rd generation platform that will slash the cost of production of its electric vehicles.

That need is becoming more urgent as Chinese EV makers reach saturation in their own markets, achieve major cost reductions of their own, and look to dramatically increase their share of other key markets.

The latest note from Morgan Stanley’s Adam Jonas, one of the world’s leading car analysts, includes some fascinating insight from his company’s team, and that of industry analyst EV-Volumes.

“Think of Model 2 as a smaller Model Y, not a smaller Model 3” Jonas writes in a new report. He says the Model 2 will be based on an LFP battery with 4680 cells to enable low cost. “The small/compact SUV segment is huge in Europe so Model 2 will be especially important in that market,” he adds.

Morgan Stanley says that the official launch date of the Model 2 will be much closer to production times than previous launches of the Model 3 and Model Y. This is because Tesla would want to avoid the “Osborne effect” where a new product launch can disrupt orders of existing products as customers hold out for the new model.

Model Y is clearly popular. It was the third best selling passenger car globally in 2022 – and the second best selling SUV of any kind in Australian in March. The Model Y RWD has recently sold out in Australia for Q2 with earliest deliveries now not expected until July.

Morgan Stanley predicts Tesla’s new model will be launched in late 2024 with 300,000 units delivered in 2025. But it notes that EV-volumes.com’s Viktor Irle is predicting Model 2 could sell 700,000 units by the end of 2025 with most of these being sold in China and Europe.

Irle also predicts Cybertruck production will hit 450,000 units by 2027, with 75% of sales in the US.

Chinese slowing auto market could increase EV exports

Morgan Stanley says it is clear that the domestic China market is slowing and its car makers need to start exporting to other markets, although it quotes Irle as saying that will likely not include the US, where the Inflation Reduction Act will prevent or delay a lot of Chinese OEMs from entering the US market .

It also notes that BYD and other leading Chinese EV makers are well received in the European market.

Currently 90% of BYD’s sales are in the Chinese market leaving just 10% for global exports. As the China auto market slows perhaps Australia may also soon see a wave of new EV models coming from China.