Finally, Tesla Is Said to Be Developing an All-New SUV -- but That's Not the Biggest Surprise

Key Points

Unnamed sources claim that Tesla is in discussions with suppliers about an all-new, smaller electric SUV.

It's highly possible the all-new vehicle will be produced in China.

The new vehicle will likely bridge the gap between an aging lineup and vehicles designed for driverless technology.

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Tesla (NASDAQ: TSLA) surprised many when it made a huge pivot and scrapped its highly anticipated low-cost electric vehicle (EV) project back in 2024. The EV maker rather effectively turned attention to the company's ambitious robotaxi and humanoid robot future, and that's pushed its valuation higher at a time when its global sales and profits are in decline. The biggest recent surprise, however, might not be just the rumors that Tesla's making a new vehicle, but perhaps where it could be produced and what it could be capable of.

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Lots to chew on

Here's what we do know, according to a handful of unnamed people discussing the matter with Reuters. Tesla is developing an all-new, smaller, and more affordable electric SUV. Tesla has been in contact with suppliers regarding the details of the compact SUV, and all information points to an all-new SUV rather than a variant of Tesla's current Model Y.

Here's what we don't know: Whether this all-new vehicle -- if it becomes a product -- would be a return in strategy to focusing on Tesla's automotive roots, or if it would play a more impactful role in aligning Tesla's automotive lineup with future ambitions of driverless vehicles. The truth is that most global markets won't see accelerated adoption or regulatory approvals of driverless vehicles for many years. It's also worth noting that Tesla has scrapped projects before, and there's no certainty this is anything more than rumor.

While Tesla didn't respond to Reuters' requests for comment, it seems likely the vehicle as described by the sources would be easily adaptable to being produced for human drivers (with a steering wheel and pedals) and driverless, for a potential transition of its purpose over time.

Another interesting tidbit for investors is that three of the people speaking to Reuters claimed the all-new SUV would be produced in China. The reason that's intriguing is that Tesla often ranks very high on the Cars.com American-Made Index, which considers the location of final assembly, percentage of U.S. and Canadian parts, country of origin for engines and transmissions, and its U.S. manufacturing workforce. Last year, Tesla swept the top four spots in the rankings, and investors would have to drop down to No. 19 to find a vehicle from either Ford Motor Company or General Motors.

What should have investors intrigued -- or dare I say optimistic -- is that if Tesla produces the all-new SUV in China, it could mean it takes advantage of China's electric vehicle advances. New-energy vehicles (NEVs) represent about 50% of China's market, and it could be a very real competitive advantage for an EV maker such as Tesla to be more in tune with China's EV advancements than its rivals, such as Rivian (NASDAQ: RIVN) and Lucid (NASDAQ: LCID), that aren't yet in the market.

Two of the sources told Reuters that Tesla is targeting the all-new SUV to be a substantially lower price than its entry-level Model 3, which starts at $34,000 in China and roughly $37,000 in the U.S. market.

Why it all matters

It's great that Tesla has its eyes on the future of driverless vehicles, humanoid robots, and artificial intelligence (AI). In the eyes of many, however, it shouldn't take all of Tesla's focus as its vehicle lineup ages and competition from EV makers intensifies, especially from the Chinese, who are rapidly expanding out of their domestic market.

Maybe this latest rumor means Tesla is going back to its roots, or maybe this vehicle could help bridge the gap between the automaker's aging lineup and its vision for a future with driverless vehicles. Either way, investors should hope this all-new vehicle turns into reality sooner rather than later.

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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.