Model Y Will Launch a Cheaper Version
With the spy photos of the Chinese Model Y's cheaper version no longer a secret, only two questions remain: how low can the price go, and what about the hardware capabilities of the assisted driving system?
In China's auto market, the general consensus has always been that cheaper is better. But this may not hold true for Tesla's new models. Elon Musk has finally confirmed that the "affordable" Tesla will be a stripped-down Model Y, set to hit the market in the fourth quarter of this year. Foreign media reported that Tesla originally planned to develop a completely new model for the cheaper version. However, Musk noticed that due to reduced market demand, the production lines for Model 3 and Model Y were not fully utilized. Just five days ago, during Tesla's Q2 earnings call, Musk stated bluntly, "It's just a Model Y."
Musk pointed out that the decline in Tesla's sales is not due to insufficient market demand, but rather limited consumer purchasing power. The goal of the stripped-down Model Y is to expand market share.
In the second quarter of 2025, Tesla delivered its most disappointing quarterly report in years. Revenue dropped by 12% year-over-year, an increase from the 9% decline in the first quarter, marking the largest single-quarter drop since 2012. Vehicle deliveries fell to 384,100 units, down 14% year-over-year. After the release of this lackluster report, Tesla's stock price plummeted by over 9% at one point.
Shortly after the earnings release, spy photos of the cheaper Model Y went viral on Chinese social media: the car was smaller in size, and the configuration was significantly reduced. Musk indicated that while the cheaper Model Y is expected to boost sales, he doesn't expect it to improve revenue or gross profit. It seems that the biggest surprise of the stripped-down Model Y will be its price.
With over 10 items stripped down, will the price drop by 100k?
In the United States, the starting price of a Model Y Long Range Rear-Wheel Drive is close to 45,000 (RMB 325,500). "People's desire to buy is high, but they don't have enough money," Musk said bluntly during the earnings call. "So the cheaper we can make the cars, the better."
How to produce a cheaper Model Y? Strip it down.
From the spy photos circulating online, the new model has at least 10 noticeable reductions:
- Panoramic sunroof replaced with sheet metal;
- Leather seats changed to fabric;
- Seat ventilation and heating removed;
- Rear screen eliminated;
- Coat hook removed;
- Rear space appears to be shorter;
- Vehicle size seems to be reduced;
- Front light group removed;
- Rear tail light with diffused reflection removed;
- A-pillar tweeter removed;
- Wheel size changed to 19 inches...
As the biggest cost component, the power battery is also expected to be reduced to 50kWh or even lower, with a range dropping to within 500KM. Not long ago, Tesla officially announced that its first North American factory dedicated to producing lithium iron phosphate batteries is about to be completed. Foreign media predict that as early as 2027, US-made lithium iron phosphate batteries will significantly reduce the price of the base Model 3/Y and will be widely used in the new cheaper models.
In the Chinese market, reducing battery costs is apparently much easier. Data released by the Innovation Alliance of Power Battery Industry shows that as of April 2025, the average price of domestic power batteries has dropped from 0.65 yuan per watt-hour in 2024 to 0.42 yuan per watt-hour, a decrease of nearly 35%.
A rough estimate shows that the cost of a 50kWh battery pack has dropped from 32,500 yuan to 21,000 yuan. The recently launched pure electric sedan by Zero-Run, the Zero-Run B01, has an entry-level model equipped with a 43.9kWh battery, priced within 90,000 yuan.
In addition to this, the most concerning question for the outside world is whether the cheaper Model Y will support FSD. Musk once said that Tesla will not produce a cheaper version without an autonomous driving version. This statement can also be understood as, in Musk's view, a Tesla without intelligent driving capabilities is not competitive.
The key here is whether the cheaper Model Y will, like the Model Y, be equipped with HW 4.0 hardware. In March of this year, when FSD was launched in China, Tesla officially announced that the team was completing the approval work for the intelligent assisted driving software corresponding to the 3.0 and 4.0 hardware. In layman's terms, the HW3.0 hardware can support a weakened version of FSD.
Will it be impossible if the price exceeds 150,000 yuan?
What specific configurations the cheaper Model Y will have mainly depends on the price. Thanks to the supply chain advantages, the price of the cheaper Model Y in China will be more advantageous than in other regions. Foreign media reported that the cost of the cheaper version will be at least 20% lower than that of the Model Y. Based on this, it is estimated that the premium of the whole vehicle can be reduced by 30% or even more. Calculated based on the current price, the price of the cheaper Model Y can come within 170,000 yuan, or even to the 150,000 yuan level.
Although, in the face of Tesla's strong brand appeal, a significant reduction in the starting price theoretically makes the new car more competitive. However, this strategy of reducing configurations and lowering prices is actually contrary to the current consumption trend in China.
Take the popular new energy models at the 150,000 yuan level as an example, such as Song PLUS and Qin L. They all have a common feature: by extremely controlling costs, they maximize the configuration. The same logic applies to the best-selling model in the same price range, Xiaopeng MONA M03, which is low-priced + AI, maximizing comfort configuration.
All of these point to one thing: the lower the price of the model, the less the brand power adds to the sales volume. In the best-selling models at the 150,000 yuan level, whether it is domestic new energy or joint venture models such as Passat and Corolla, each is a good hand at cost control that can rival Tesla. Because everyone understands that the more price-sensitive users are, the higher their requirements for configuration, and the more likely they are to "want both."
It can be foreseen that the strategy of the cheaper Model Y will be to retain Tesla's advantages in core power electronics, energy management, and even AI capabilities, while reducing comfort configurations. This is similar to the move Apple made when it launched the iPhone SE.
The first-generation iPhone SE, launched in 2016, won the hearts of many users with its relatively affordable price and compact size compared to the standard version. However, as this cheapest iPhone was upgraded over several generations, it faced a lukewarm reception in the global market. This product, which was supposed to follow the "cost-performance ratio" route, was ridiculed by Chinese users as "buying a chip and getting a phone for free."
In the Chinese market, the iPhone SE, which starts at more than 3,000 yuan, cannot compete with domestic brands that dominate the mid-range market. Statistics show that from 2020 to 2021, the share of iPhone SE in total shipments was less than 10%. The truth that "there is no unsold product, only the price is not low enough" has been repeatedly debunked by the iPhone. The sales dilemma of iPhone SE in China proves that it is not necessarily the case that the lower the price, the better it sells.
Musk said that everyone wants to buy Tesla, but is limited by financial constraints, so he launched a cheaper version. We have reason to believe in Musk's accuracy in judging the US market, just like the rumored iPhone SE4, also known as iPhone 16e, which may not be popular with Chinese consumers but could sell like hotcakes in the US market. After all, Chinese consumers have long been desensitized by wave after wave of price cuts and configuration increases, and this trend is hard to reverse. Price reduction is a good thing, but if the reduction is not sufficient, it may not be the case.
