What's Behind Tesla's Shift to Affordable EV Production?
Tesla has begun limited production of a more affordable model, with volume manufacturing planned for the second half of 2025.
The move, discussed in a Q2 investor earnings call, comes as the company continues to face a slump in vehicle deliveries and shrinking profits.
The car maker, still run by CEO Elon Musk after his now-ended tenure within Donald Trump’s administration, posted a 12% drop in revenues over the second quarter of 2025.
Over the same period, Tesla produced more than 410,000 vehicles and delivered over 384,000 – a 14% decline and the second quarterly drop in a row.
The company has faced several challenges, including growing competition from rival automotive manufacturers like China’s BYD, Musk’s ongoing spat with Trump and the US government’s shifting position on supporting electric vehicles.
Tesla provided no firm update to its year-ahead outlook, stating in an investor document that “it is difficult to measure the impacts of shifting global trade and fiscal policies on the automotive and energy supply chains, our cost structure and demand for durable goods and related services.”
Musk vs Trump and its impact on production & delivery
Tesla manufactures five main vehicle models: Model S, Model 3, Model X, Model Y and Cybertruck. These are made in eight locations worldwide, including factories in California, Nevada, New York, Shanghai, Texas, Berlin, Kato and Lathrop.
The company’s 384,000 vehicle deliveries from these sites came between April and June 2025.
Expanding on its drop in numbers, Tesla points to “a sustained uncertain macroeconomic environment resulting from shifting tariffs, unclear impacts from changes to fiscal policy and political sentiment.”
Musk’s time with President Trump has had considerable knock-on impacts on the business, which has seen profits down in five of the last six financial quarters. Shares have also dropped by close to 30% from their peak last year.
The so-called ‘bromance’ between the pair ended at the start of June – in May it was reported by The Wall Street Journal that the electric car firm was looking for a successor for Musk because of frustrations about his work with the US administration. Tesla said the report was “absolutely false”.
In June Musk took to X to criticise Trump’s ‘big beautiful bill’ – the bill impacted EV manufacturers like Tesla, ending the US$7,500 federal tax credit for new EV purchases and eliminating the US$4,000 tax credit for used EVs.
Electric car supporters argued the measures would slow EV adoption.
Manufacturing an affordable EV
Tesla also faces stiffer competition from other electric vehicle manufacturers. Firms like BYD, Volkswagen and NIO have become particularly strong competitors,
In April 2025 BYD outsold Tesla in Europe, gaining traction in the affordable EV segment. Volkswagen has solidified its position as a top European EV seller, while more established manufacturers like Ford and General Motors have also increased investment in new electric vehicles.
Tesla’s focus on more affordable models comes in response to this shifting market dynamic. The company gave a nod to continuing expansion of its vehicle offering in the latest investor call, singling out first builds on its more affordable model.
Few details are available on this new model, although Musk suggested during the call that the car would be a stripped-down version of the existing Model Y, saying “I let the cat out of the bag there”.
Musk also told investors that the company’s European sales were expected to increase once customers could use Tesla’s self-driving software there.
He explained that the first approval for the software, known as Autopilot and Full Self-Driving, is expected in the Netherlands with the company hoping for wider approval by the European Union.
