Tesla confirmed its new affordable electric vehicle, previously rumored and highly anticipated, will be a stripped-down version of the Model Y. Production is slated for the second half of 2025. CEO Elon Musk stated the goal is to address the affordability barrier for potential Tesla buyers, acknowledging that many desire the vehicle but lack the financial means to purchase it. Musk's previous plans for a separate, lower-cost Model 2 have been abandoned.

The cost reduction will involve removing or downgrading several features, based on suggestions from online commentators. These include replacing premium materials (e.g., leather seats), simplifying components (e.g., mechanical seat adjusters), and removing features like premium sound systems, mood lighting, and advanced safety systems. The use of lower-cost lithium-iron-phosphate (LFP) batteries, produced at Tesla's Nevada factory, is also expected.

The strategy faces challenges. Concerns exist regarding the potential impact of further cost reductions on the already basic Model Y and the ability to achieve significant price cuts while maintaining profitability, particularly with the end of EV tax credits.

Impact Statement: Tesla's strategy to offer a more affordable EV through a simplified Model Y could significantly impact its market share and profitability, depending on the success of its cost-cutting measures and the competitive landscape.