Tesla announces cheaper Model Y to combat sales and revenue dive

US firm fights back after one of its worst ever quarters, caused by huge drops in sales and EV credit revenue Tesla will launch a cheaper variant of the Model Y in a bid to increase sales after posting one of its worst ever quarterly sales declines. In January, Tesla boss Elon Musk to launch a range of "more affordable models" by this summer in a bid to broaden its appeal. Rather than an entirely new model, this has instead amounted to a stripped-out version of the American EV brand's best-seller. Production is scheduled to begin from around August or September. Musk hasn't said whether other affordable models, such as a new Model 3, are planned. Nor has he provided more information, such as which markets the new Model Y would be sold in, target volumes or a target price. The current cheapest version of the SUV starts at £51,990. Tesla hopes the new base model wil especially help to incentivise sales in the US, where current $7500 government electric car grants are due to be stopped as part of president Donald Trump's rollback of emission mandates. The new model announcement has come after Tesla posted heavy losses in the second quarter of 2025. Musk warned that the trend is set to continue in what is expected to be one of Tesla's most challenging periods. The key pullout from the EV maker’s second quarter earnings, released on Wednesday night, was a 16% dip in income to $1.17 billion. Tesla blamed this on a 13% decline in sales, a reduction in its average model selling price and an increase in operating expenses. Most importantly, revenue from electric car credits, bought by other manufacturers to hit mandated emissions targets – which Tesla has hugely profited from previously – has dropped by 51% (or $441 million) since Q2 2024, including $154m since the previous quarter alone. This has been driven by Trump’s winding down of electric car regulations in the US, meaning car makers no longer need to hit certain EV production targets and therefore have no need to buy credits. Announced in January, the revocation of former president Joe Biden’s legislation – which mandates that by 2030, 50% of all new cars sold in the US must be electric – is due to take effect in the coming months. As such, Musk told reporters on the earnings call that Tesla “probably could have a few rough quarters; I’m not saying we will, but we could”. His comments resulted in share prices in the firm dropping 7%. This year has been difficult for Tesla. Despite introducing an updated version of the Model Y earlier this year, it has struggled in China – previously one of its most significant makerts – due to tariff tensions and sales drops linked to Musk's ties with Trump. While Tesla seemingly has no other mainstream models in the pipeline, a buoyant Musk said he expected a wave of revenue to come from the brand’s upcoming self-driving technology, such as its robotaxi service (currently being trailed in Texas) and vehicles such as the Cybercab. It has also invested heavily in the development of humanoid robots. “Once you get to autonomy at scale in the second half of next year, certainly by the end of next year, I think I'd be surprised if Tesla's economics are not very compelling,” said Musk.

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