Are Tesla's "Affordable" Models Truly Cheap and Can They Fuel Demand?

After years of delays, Tesla TSLA has finally rolled out new “affordable” models. But these are just more affordable versions of its popular Model 3 and Model Y. The move comes as the EV pioneer tries to revive demand and defend its turf amid rising competition and the loss of U.S. EV tax incentives. But are these new models really the game-changer Tesla needs—or just a short-term patch?

A Cheaper Entry Into Tesla’s Lineup

The new Model 3 Standard and Model Y Standard start at $36,990 and $39,990, respectively, making them the cheapest Tesla cars so far. That’s about $5,000-$5,500 less than the “Premium” versions, which previously held the title of Tesla’s most affordable options.

To achieve these lower price points, Tesla has stripped out several comfort and tech features. Gone are Autosteer, the rear passenger touchscreen, seat heating and the LED light bar in the Model Y. Both vehicles now have manual side mirrors, textile seats (with optional vegan leather in the Model 3) and fewer speakers.

While these changes trim costs, the cars still deliver solid performance, each offering a range above 300 miles on a 69-kWh battery. Deliveries of these vehicles are expected between November and December.

Why Tesla Needed This Move

After a strong third quarter — fueled by buyers rushing to secure the now-expired $7,500 U.S. EV tax credit — Tesla faces a much tougher market. EV sales growth is slowing, and competitors in China and Europe are churning out cheaper models with increasingly competitive tech.

By launching “standard” variants, Tesla aims to make its vehicles more accessible and offset declining sales from its aging lineup. However, the strategy also underscores the company’s pivot away from its long-promised $25,000 EV, once dubbed the “Model 2.” That project was abruptly canceled last year.

Not That Affordable

For budget-conscious buyers, these new trims might make Tesla cars a little more attractive. But there’s a catch—while the cars are cheaper, are they really that cheap? We don’t think so. At nearly $40,000, they still cost significantly more than quite a few all-electric and hybrid alternatives.

Tesla’s new “affordable” models offer a welcome price break and could give sales a short-term boost. But without a true low-cost EV in the pipeline, the company risks losing ground in the mass market it once dominated.

Tesla has indeed made its cars less expensive—but not necessarily affordable enough to win over mainstream buyers.

Also, cheaper versions of existing models could affect sales of higher-margin vehicles. In the longer term, these price cuts will not directly address the real threat from Chinese EV makers, who are flooding global markets with sub-$30,000 electric cars packed with features.

Competitor Check

Automakers worldwide are realizing that affordable EVs are key to increasing adoption. 

Chinese EV giant BYD Co Ltd BYDDY is making headlines with its low-priced electric cars, leveraging its vertically integrated supply chain to keep costs down. BYD’s cheapest model, the Seagull, starts under $10,000. Earlier this year, BYD upgraded the Seagull with advanced driving features, making it an even stronger competitor in the affordable EV market. For Tesla, BYD’s aggressive pricing is a clear signal that winning mass-market buyers will take more than just stripped-down trims.

Japanese auto biggie Toyota TM is also making a push for affordability in China, the world’s largest EV market. In March, Toyota launched its cheapest EV in China, the bZ3X, priced at around $15,000—roughly 30% cheaper than the bZ3 sedan. Designed as a compact electric SUV, the bZ3X competes directly with budget-friendly Chinese EVs, including models from BYD. This move represents a significant shift for Toyota, highlighting its commitment to gaining a stronger foothold in the growing EV sector.

U.S. legacy automaker Ford F is also betting big on lower-cost electric vehicles with its new Ford Universal EV Platform. The first model will be a midsize, four-door electric pickup, expected to start at around $30,000. Ford plans to produce this vehicle at the Louisville Assembly Complex in Kentucky, backed by a $5 billion investment that will create nearly 4,000 jobs. Deliveries of the model are slated to begin in 2027. Ford’s plan signals growing competition in the United States for affordable EVs.

TSLA’s Price Performance, Valuation and Estimates  

Shares of Tesla have risen roughly 7% year to date compared with the industry’s rise of 13%.

From a valuation standpoint, Tesla trades at a forward price-to-sales ratio of 13.75. It carries a Value Score of F.

Take a look at how the Zacks Consensus Estimate for TSLA’s earnings has been revised over the past 90 days.

Tesla stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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