$40,000 Tesla Model 2 existed and was personally cancelled by Elon Musk despite denials, confusing Tesla executives and investors as 2025 MG4 and BYD Dolphin-rivalling car is a no show | report

Musk personally cancelled the $40,000 BYD Model 2 and then denied it, leaving Tesla executives, employees and investors confused and angry, according to a new report.

Reuters claims Elon Musk’s denial on X of reports that he had cancelled what would have been an all-new compact model “alarmed” the company’s executives, in what it seems was an attempt to arrest the resulting share price decline.

According to Reuters, which claims it has seen internal documents and spoken to several sources, Tesla had already told employees weeks earlier the Model 2 project was cancelled, and his claims that reports of the model’s cancellation even had some inside the company questioning whether Musk had changed his mind.

Indeed, according to earlier reports, Tesla’s engineering team had already contacted suppliers involved in the development of the Model 2, informing them to halt further investment in the project.

Some executives were reportedly worried that the denial of the project’s cancellation would hurt the company’s sales in the long run, as buyers delayed purchases of existing models in order to wait for a more affordable one that was never coming.

Others were worried the US Securities and Exchange Commission would decide denying the cancellation of the model could lead to action over misleading investors, as had happened before when Musk posted that he intended to take the company private.

Musk has been talking about a sub-A$40,000 model since around 2020, and even re-iterated at the ‘We, Robot’ event which debuted the Cybercab/Robotaxi that one could be coming as soon as this year.

It seems the Model 2 project was dumped in favour of development on autonomous vehicles.

However, concerns rising competition in the low-cost EV space from brands like BYD has instead made Tesla focus on its existing line-up, which will seemingly involve more affordable versions of the Model Y and Model 3.

There is already a more affordable version of the new Model 3 available in the Mexican market with a more basic interior treatment. It swaps the leather interior for cloth seats and doors, removes the heated and ventilated seats, as well as the rear multimedia screen and acoustic glass for all but the windscreen. It comes at a saving of the equivalent of A$4000 which would see a base rear-wheel drive car delivered in Australia reduced to $50,900 before on-roads, hardly the $40k mark the brand was once aiming for.

Recent rumours out of the Chinese factory suggest an upcoming lower-cost Model Y may go beyond reduced specification and actually have some structural changes. Sources told Reuters recently this low-cost spin-off is due in 2026 and will be “smaller and cost 20 per cent less to produce” according to the publication.

Sales have wavered at Tesla off the back of its ageing range and increased competition both from traditional automakers now fielding a range of more competitively priced EVs, and newcomers from China which significantly undercut even the most affordable Model 3 and Model Y sold locally.

Combined with a steady stream of controversies like the above, even the Australian Country Director for the brand Thom Drew told CarsGuide recently: “It’s not the ideal scenario that we’re in right now”

I think our focus on the product and how wonderful it is and how it really does solve the needs of our target segment is something that we're going to be pushing very strongly to make sure that the market remembers that, and try and get it back on point to product-focused,” he added.

"I think there's a lot of things going on in the world that are outside of our control that are influencing some of the sales figures at the moment. I'd like to think that...it is a strong enough product that we can remind the market of why we're number one, why it has been the world's best-selling car over the past few years, and hopefully get us back there."

Tesla’s sales have had a major rebound recently from record lows according to recent figures, with pent-up demand for the new Model Y having its sales surge by 9.3 per cent compared to this time last year, with the heavily upgraded mid-sizer accounting for 3580 units.

It will have a long way to go to address its year-on-year decline of 48.2 per cent, and it remains to be seen whether the new Model Y can help it maintain the kind of momentum it will need, particularly as its new-product horizon for Australia is looking bleak.