Game-changer: Here comes the $40k Tesla Model 2

Elon Musk has reportedly confirmed work will now begin on the long-awaited Tesla Model 2, with the cut-price model to be even cheaper than expected.

The news comes from trusted outlet Reuters, who report production for the Model 2 will begin in Tesla's Berlin Gigafactory, with the budget-friendly EV to list from 25,000 Euros – AUD$41,773 based on today's conversion.

That pricing wouldn't make it the cheapest EV in Australia – that honour belongs to the BYD Dolphin, closely followed by the MG4 Excite 51, both of which list at below $40k – but Tesla's brand cache could elevate the Model 2 to the top of the sales list in its category.

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According to Reuters' sources, Tesla is pioneering a new manufacturing process that will drastically reduce production costs, allowing for the bargain-basement pricing on the Model 2.

The idea, the site says, is to die-cast the vast majority of the Model 2's underbody in a single piece, significantly speeding up production.

Musk stopped short of confirming the Model 2 at the 2023 Tesla Annual Shareholder Meeting back in May, although he did drop a shadow-filled teaser image.

“People always want to know what our next product is, but this is not the time to … we obviously need to have a proper dedicated product launch,” he said.

“I just want to emphasise we are actually building a new product; we are actually designing a new product; we aren’t just sitting on our hands here.

“There are two new products that I think you will be very excited about, and both the design of the products and manufacturing techniques are head and shoulders above anything else present in industry.”

A shadow-filled teaser image was revealed by Musk at the 2023 Annual Shareholder Meeting.

Tesla has also flagged in the past the new entry-level model will make use of a 53kWh battery, while also utilising a more streamlined manufacturing process that should save on both time and cost.

While the Berlin factory would presumably be used for European production, Musk had been involved in rounds of talks between Tesla executives and Indian government officials in New Delhi focused on establishing a manufacturing base for cars and batteries in India, now the world's third-largest automotive market.

China is another possibility, with Australian Tesla production already sourced from the manufacturing giant.

Either way, Musk has big plans for the cut-price Tesla, saying the new affordable model will outsell the Tesla Model 3 and Tesla Model Y combined, and describes the project as "the primary focus of our new vehicle development team".

The Tesla boss hasn't attached a launch date to the new model yet, but the plan will give hope to those currently priced out of the EV brand's line-up.

"We don't know the exact dates, but this is the primary focus of our new vehicle development team," Musk has said.