Tesla's Affordable EV: Do the Latest Details Make the Stock a Buy?

Tesla (NASDAQ: TSLA) has been talking about a cheaper EV for years, but it has always been just out of reach, and plans to build one have continually changed. But the company recently gave some updates about its progress on releasing a more affordable EV, even if details are still sparse.

Here are three things we know about Tesla's upcoming lower-priced EV and what it may mean for the company after it is launched.

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Image source: Tesla.

1. The new model could just be a stripped-down version of a current model

Last year, Tesla reportedly axed plans for what some were calling the Model 2. But the rumors of a cheaper model never quite went away.

Tesla confirmed its plans for a cheaper EV to debut soon when management said in prepared remarks: "As guided, switchover of production lines for the New Model Y resulted in several weeks of lost production. During the switchover, we also prepared our factories for the launch of new models later this year."

On the company's recent first-quarter earnings call, Tesla's vice president for vehicle engineering, Lars Moravy, said, "And so the models that come out in the next months will be built on our lines and will resemble in form and shape, the cars we currently make."

There are two things to note here. The first is that there are two references to "models," meaning more than one. While there aren't many specifics on one affordable Tesla, let alone two, it's still unclear exactly what it means.

Since the production line updates for the refreshed Model Y and preparation for the launch of new models happened at the same time, it's widely believed the new model (or models) will be based on the Model Y and potentially the Model 3.

2. Tesla says the model will be "affordable"

In its first-quarter results, the company said, "Given economic uncertainty resulting from changing trade policy, more affordable options are as critical as ever."

Moravy said on the earnings call that "[T]he key is that they will be affordable and you'll be able to buy one."

So, the price will be...affordable.

Tesla's previously rumored cheaper model was expected to cost $30,000 after EV tax credits. That estimate was before President Donald Trump's tariffs that could cause price increases for core EV components, including batteries.

While the Trump administration scaled back some automotive tariffs recently, there's still significant uncertainty around how automakers will be affected.

Any tariffs on auto parts, batteries, semiconductors, sheet metal, or the various other components in a vehicle could cause Tesla to raise prices for its current lineup. If so, an "affordable" model with a goal of $30,000, after incentives, may be harder to pull off than before.

3. Production will begin in June

One detail that management made clear on the call is that production of the model will start in June 2025. Chief financial officer Vaibhav Taneja said: "We think our strategy of providing the best product at a competitive price is going to be a winner, and this is the reason we're still focused on bringing cheaper models to market soon. The start of production is still planned for June."

Tesla's management told analysts on the call that the ramp up for new vehicle production "might be a little slower" than the company expected initially, given the "turmoil in the industry right now."

Still, June production is the target, and even a slow rollout of an affordable Tesla is better than no rollout of an affordable vehicle.

Will the new model be too little, too late?

A lower-priced model is a smart move. The average transaction price for a new Tesla is now more than $54,500, so a $30,000 price tag could help the company attract more budget-conscious buyers who previously couldn't afford one of its EVs.

But I think the timing of the new model is unfortunate. First, while the company may be less affected by automotive tariffs than some automakers, it's not immune. Any price increases in materials, electronic components, or other auto parts could make it difficult to earn a significant profit margin on its affordable model. With Tesla's net income falling 71% in the first quarter, it needs its vehicles to be as profitable as possible.

The company doesn't have control over what the Trump administration decides to do with tariffs. But Elon Musk's involvement in running the Department of Government Efficiency (DOGE) and his subsequent distraction from running Tesla have caused damage to the company's brand.

Musk said recently that he's scaling back his time at DOGE to one or two days per week, but I think some of the damage has already been done. Tesla can rebuild its reputation over time, but it probably won't be able to do so by the time a more affordable model is launched.

That means the new model will debut with the backdrop of tariffs, an uncertain economy, and a brand that's suffering. That's not exactly a recipe for success for a new product.

While I think a cheaper EV will be a positive move for Tesla, I don't think it makes the stock a buy right now. Investors should wait to see how well the vehicle sells and if its lower price attracts new customers. For now, it's probably best to take a wait-and-see approach rather than buy shares before the vehicle is launched.

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.