Tesla debuts 'affordable' Model Y and 3 that strike some as too expensive

By Abhirup Roy and Harshita Mary Varghese

(Reuters) -Tesla rolled out "affordable" versions of its best-selling Model Y SUV and its Model 3 sedan, but the starting prices of $39,990 and $36,990 struck some as too high to attract a new class of buyers to the electric vehicle brand. 

Tesla's stock fell 4% and Tesla bull Dan Ives, an analyst at Wedbush, said he was disappointed that the cars were only about $5,000 cheaper than the next trims of the models.

The new versions, called Standard, cost more than what the previous models started at, including a $7,500 tax credit that expired at the end of September.

The much-awaited unveiling is crucial for Tesla as it pushes to reverse falling sales and waning market share amid rising competition in Europe and China, and the loss of the U.S. tax credit.

CEO Elon Musk has for years promised mass-market vehicles, though last year he canceled plans for an all-new $25,000 EV, Reuters first reported. Instead, he chose to build lower-priced versions based on Tesla's current models, sparking concerns among investors and analysts that the cheaper cars would cannibalize sales of existing vehicles and limit growth.

"It's basically a pricing lever and not much of a product catalyst," said Shay Boloor, chief market strategist at research firm Futurum Equities. "I don't see it as unlocking new demand at scale."

Both Standard versions offer 321 miles (516 km) of range and less powerful acceleration than the current higher trims called Premium. They can be ordered immediately, with deliveries set to start between December 2025 and January 2026 for many locations, Tesla's website showed.

The Standard versions do not come with Autosteer, Tesla's driver assistance system, or touchscreens for rear passengers. Tesla has also removed the LED lightbar in the cheaper Model Y. Both come with textile seats, with vegan leather available for the Model 3, and manually adjusted side-view mirrors.

Late last year, Musk said the vehicle would be priced below the "key threshold" of $30,000 including U.S. EV tax credits.

In the United States, prices effectively rose by $7,500 at the end of last month, when the credit ended. Quarterly sales rose to a record as consumers rushed to take advantage of the credit while they could, but expectations are that they will slow down for the rest of the year, unless the affordable car comes to the rescue.

"The desire to buy the car is very high. (It's) just (that) people don't have enough money in the bank account to buy it," Musk said in July during Tesla's second-quarter earnings call. "So the more affordable we can make the car, the better."

Tesla had posted two clips on X over the weekend, igniting excitement among fans. One video shows headlights peering out of the dark and another shows what looks like a wheel spinning for a few seconds, followed by "10/7" — the U.S. format for the date October 7.

CRUCIAL TO $1 TRILLION PAY PLAN

Musk initially promised that production of the vehicle would start by the end of June. But Tesla only made what it called "first builds" of the car, it said in July, adding that it would be available for customers sometime in the last three months of the year.

Tesla has already been grappling with slowing sales of its aging lineup as competition has grown rapidly, especially in China and Europe, where Musk's far-right political views have also undermined brand loyalty.

Earlier this year, Tesla launched a refreshed version of the Model Y with improvements including new light bars and a rear touchscreen.

Musk has been pivoting the company toward artificial intelligence, focusing on robotaxis and humanoid robots. Tesla has said it will launch more affordable vehicles in its lineup but has not provided details. 

Affordable cars will also be key to Tesla delivering 20 million vehicles over the next decade - one of the several operational and valuation milestones set by the company's board as part of its proposed $1 trillion pay package for Musk.

(Reporting by Abhirup Roy in San Francisco and Akash Sriram and Harshita Mary Varghese in Bengaluru; Editing by Peter Henderson, Richard Chang, Sriraj Kalluvila and Alan Barona)