Tesla to Launch Lower-Priced Model 3 and Model Y in China by 2026 – A Strategic Move Toward Affordable EVs

Tesla is once again making headlines in China, this time for something that could reshape its position in the world’s largest electric vehicle (EV) market. Reports suggest that the American EV giant is preparing to launch lower-priced versions of its popular Model 3 and Model Y in China, with production expected to begin around mid-2026.

This strategic step marks Tesla’s renewed focus on affordability and mass adoption—key factors in maintaining its dominance amid fierce competition from Chinese automakers like BYD, NIO, and Xpeng.

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Tesla’s Affordable EV Project: What We Know So Far

According to sources cited by CnEVPost, Tesla’s Shanghai Gigafactory is currently testing two simplified models internally, codenamed E41 and D50.

E41 reportedly represents a “budget” version of the Model Y,
D50 is said to be the cost-cut Model 3.

Both are undergoing validation testing, a critical phase before mass production begins. Tesla aims to start full-scale manufacturing by mid-2026 or later.

The “Depop Strategy” – Simplifying Without Sacrificing Quality

Tesla’s new cost-cutting initiative is based on what internal teams call a “Depop” (de-population) strategy.

This approach removes or simplifies certain premium features—like acoustic glass, powered tailgates, or complex driver-assistance sensors—while retaining Tesla’s core strengths: battery efficiency, powertrain reliability, and structural integrity.

Essentially, Tesla plans to make cars cheaper, not weaker.

Following the U.S. Launch of Cheaper Models

This move isn’t entirely new. Earlier in October 2025, Tesla rolled out “slimmed-down Standard” versions of both the Model 3 and Model Y in the United States, cutting prices by US $5,000 to $5,500.

The American versions achieved this by simplifying over 20 non-essential features, allowing Tesla to undercut rivals without compromising its brand value.

If the same pricing logic applies in China, Tesla could drastically narrow the gap with domestic EV brands that currently dominate the entry-level market.

China’s EV Landscape: The Pressure Is On

China’s EV scene has transformed into a battlefield. Companies like BYD, Leapmotor, and XPeng are pushing aggressively into the affordable segment with models offering impressive range and advanced tech at remarkably low prices.

Tesla, known for its innovation and brand prestige, has long focused on mid-to-premium buyers. But as competition heats up, the company needs a strategy to win back cost-sensitive consumers—and these new “Lite” versions could be the answer.

Production Timeline and Market Expectations

The new Tesla models are expected to enter production in mid-2026, depending on a few key factors:

Market demand for the refreshed Model Y, launched in January 2025.
Performance of the six-seat Model Y L, introduced in August 2025, which has reportedly exceeded sales expectations.

If sales of the current Model Y slow down, Tesla might fast-track the affordable variant’s debut to maintain momentum in China’s competitive EV market.

The Return of Tesla’s “$25,000 Car”

Interestingly, the report also hints that Tesla is reviving two smaller-car projects, codenamed NV91 and NV93.

The NV91 project refers to the long-rumoured US $25,000 compact EV that Elon Musk first teased years ago but halted in 2024. If production resumes, this could finally bring Tesla’s dream of an affordable, mass-market EV to life—first in China, and later globally.

Why Tesla’s Move Matters

Tesla’s decision to re-enter the affordable EV segment could have massive implications:

Consumer Reach – Lower prices mean more people can access Tesla’s cutting-edge technology.
Market Share Defence – Helps Tesla stay competitive against budget-friendly Chinese EVs.
Global Strategy Alignment – Fits Elon Musk’s long-term goal of accelerating the world’s shift to sustainable energy.
Supply Chain Efficiency – Reusing core components across different models cuts costs without major design overhauls.

Can Tesla Win the Price War?

While Tesla’s brand and technology remain strong, China’s local manufacturers have mastered the art of value engineering—delivering more features at lower prices.

Tesla’s challenge will be balancing cost with innovation. It must lower production expenses without sacrificing the driving experience or reliability that made it famous.

If Tesla succeeds, it could not only strengthen its position in China but also export these affordable versions to Europe and other emerging markets, expanding its global footprint.

Expert Opinions

Industry analysts believe Tesla’s move is both necessary and timely.

“With BYD overtaking Tesla in global EV sales earlier this year, it’s clear Tesla needs a new growth lever. Launching low-cost models from its Shanghai plant is the smartest way forward,”
says Li Feng, an auto industry analyst based in Beijing.

He adds that the Shanghai Gigafactory’s scale allows Tesla to test and mass-produce new variants faster than any of its Western rivals.

Conclusion

Tesla’s plan to produce lower-priced Model 3 and Model Y variants in China by 2026 signals a strategic pivot toward affordability and inclusivity.

The company is embracing a more flexible production philosophy—simplifying design, localising components, and listening to market dynamics.

If executed well, these “budget” Teslas could redefine the EV market once again—making electric mobility not just a premium dream, but a mainstream reality.

FAQs

Q1. When will Tesla launch its cheaper Model 3 and Model Y in China?
Tesla is expected to begin production by mid-2026, though timelines could shift depending on demand for its current models.

Q2. What are the internal codenames for these models?
The affordable Model 3 and Model Y variants are internally referred to as D50 and E41 respectively.

Q3. Will these cheaper models have shorter range or weaker performance?
Not necessarily. Tesla’s approach focuses on reducing luxury features rather than altering core components like the battery or motor.

Q4. Is the $25,000 Tesla back in development?
Yes. The NV91 project, often called the “$25,000 Tesla,” is reportedly being revived for future production.

Q5. Will the affordable Teslas be exported?
Most likely, yes. Tesla’s Shanghai Gigafactory already serves both the Chinese and European markets, making exports a natural next step.