Tesla's Bold Bet: Cheap Models Could Be A Double-Edged Sword

On October 7, Tesla officially launched the "Standard" (or Basic) versions of Model 3 and Model Y on its US official website. These models serve as budget-friendly entry options for their flagship vehicles, attracting cost-sensitive consumers with a lower starting price. The new Model Y Standard starts at approximately $39,990, and the Model 3 Standard at about $36,990, marking a price reduction of roughly $5,000 (about 10–13%).

Previously, Tesla announced record-breaking sales for the Q3 quarter. The timing of this release coincides almost exactly with the end of the US federal electric vehicle tax credit ($7,500 tax exemption), indicating a policy-driven motive for introducing these entry-level models.

To cut costs and prices, these cheaper versions have several downgrades in hardware and configurations, such as removing the glass sunroof, car light strips, reducing the number of speakers, eliminating the rear display, switching to manual steering wheel adjustment, reducing interior materials, removing electric seat adjustments, smaller wheels, and a downgraded suspension system. In terms of range and performance, the official release states that both Standard versions have an EPA estimated range of about 321 miles (approximately 517 kilometers), and a slightly slower acceleration time from 0–60 mph. The core autonomous driving hardware, including the HW4.0 AI chip, has not been downgraded.

Tesla has a well-established Model 3/Y platform, which can reduce marginal costs, simplify modules, and cut function redundancies to lower manufacturing and supply chain costs, making the launch of "Basic" models feasible.

The cheaper versions can reach potential customers who previously thought "Tesla is too expensive." If launched in the Chinese market in the future, it could appeal to second and third-tier city markets, first-time car buyers, or those looking to switch to electric vehicles. Facing new Chinese automakers, European local brands, and the strong penetration of mid-to-low-end electric vehicles, Tesla could be squeezed out of the price war zone without an entry-level strategy. The cheaper versions can act as a defensive line to prevent sales from slipping into uncontrolled regions.

With a trend towards reduced hardware configurations, software experience, OTA updates, autonomous driving services, and intelligent experiences become the core of competitive differentiation. Since the Standard version retains the autonomous driving chip and cameras, the new models will provide customers with an entry ticket to experience intelligent driving.

The lower-priced models might cannibalize higher-priced versions. If customers feel that the cheaper versions do not significantly compromise on core experiences, they might opt for lower models, thereby compressing the company's overall average selling price per vehicle.

Value for money concerns: The public and market might perceive the downgrade as a deceptive pricing practice. If consumers feel the price reduction is insufficient and the value for money is lower than expected, it could limit the boost in sales.

Tesla's third-quarter earnings report will be released on October 22, and the 2025 Tesla Shareholders Meeting is scheduled for November 6. At that time, the company will further disclose its progress in various fields such as artificial intelligence, humanoid robots, electric vehicles, and energy. Musk previously stated that the third-generation Tesla humanoid robot is expected to be launched by the end of 2025, featuring human-like fine operational capabilities. We have previously outlined key companies in the robot and energy storage battery industry chains. As a major company in the AI era, Tesla will undoubtedly benefit from more catalysts.