Tesla reportedly set to make cheaper Model Y to regain ground in China

Besieged American electric vehicle (EV) maker Tesla is reportedly planning to make a lower-cost version of its popular Model Y in China in an effort to make up ground in a losing battle over pricing.

According to “three people with knowledge of the matter” who spoke to Reuters, Tesla is currently developing the cheaper Model Y under a project codenamed “E41”, and will begin building the car on existing production lines at its Shanghai Gigafactory some time in 2026.

The new Model Y would be smaller than current models and cost at least 20 per cent less to produce than the recently refreshed Model Y, which was launched late last year and began production at Gigafactory Shanghai in February.

Current pricing for the revamped Model Y in China starts at RMB263,500, which converts to around $A57,500. Conversely, pricing for the revamped Model Y in Australia starts at $63,400 (before on-road costs) for a pair of Launch Series special editions.

This would price a smaller and cheaper Model Y at somewhere around RMB210,800, or around $A46,000.

Reuters’ sources believe that cars made in Shanghai would mainly be sold within China in an effort to defend the company’s market share.

The unnamed sources, who declined to be identified as the project is currently confidential, also claimed that the model would eventually be produced in Europe and North America, however they did not provide a timeframe.

There is therefore not a lot of chance that an Australian version of the cheaper Model Y would be quick to appear.