Tesla stock drops after Model 2 cancellation report. Pexels

Tesla CEO Elon Musk refuted a Reuters report claiming that his automobile company is scrapping plans for a £19792.63 ($25,000) electric vehicle. The 52-year-old billionaire accused the outlet of "lying."

Reuters, citing three anonymous sources, reported that Tesla had abandoned its project for a low-cost electric car, codenamed Model 2. The Reuters folks, who claim to have reviewed internal Tesla documents, suggest the project is dead.

Responding to the report via an X post, Musk wrote: "Reuters is lying (again)." Reuters included Musk's denial in their report, noting he offered no specifics.

According to Reuters, a Tesla program manager instructed staff to cease all work related to internal codes H422/NV91, believed to be codenames for the budget-friendly electric car project. Tesla's stock price dropped nearly 5 percent after the article.

Two separate sources informed the outlet that the cancellation of the low-cost Tesla (also called the Model 2) was announced at a company meeting with numerous employees. Scrapping its £19,792.63 Tesla model, Reuters reports that Tesla will still develop the platform for self-driving robotaxis, a project they recently revealed.

The Model 2: A short-lived dream or eventual reality?

The Model 2 has become a legend in the Tesla community. It is Tesla's long-rumored yet never fully realized electric vehicle. The rumour mill began churning out speculations surrounding a budget-friendly Tesla last year.

Musk hinted at a car priced around £19,792.63, targeting the mass market. Tesla officially confirmed the Model 2 in its Master Plan Part 3, detailing plans for a lower-cost electric vehicle focusing on affordability and production efficiency.

Tesla fans speculated about features like a smaller size than other Tesla models, a focus on functionality, and the potential use of new battery technology for increased range. Much to their chagrin, concrete details and a launch date remained elusive.

In January, Musk responded to an X post, stating more Tesla products are on the horizon. There were reports of production delays and engineering challenges in achieving Tesla's ambitious price target. Now, a Reuters report claimed Tesla scrapped the Model 2 project entirely.

Despite previously promoting an affordable compact crossover with a targeted late-2025 production start at Tesla's Austin Gigafactory, Musk recently downplayed those expectations, urging analysts on an earnings call to take his optimism "with a grain of salt."

Business Insider reports that scrapping the Model 2, a highly anticipated budget-friendly electric car, could doubt Tesla's ability to achieve its ambitious growth trajectory. Investors may be concerned about the EV maker's future product roadmap and commitment to the mass market.

The dream of a sub-£23763.90 ($30,000) Tesla has been on the table since 2020, with Musk aiming to achieve it through battery and cell manufacturing cost reductions.

The need to offer an affordable car

The demand for affordable electric vehicles is growing, with budget-conscious and practical buyers entering the market. According to JD Power, the Musk-led EV company's Model 3 is one of the more affordable electric vehicles at £30885.15 ($38,990) - below the March 2024 average new vehicle price of £35001.06 ($44,186).

Industry data shows the average electric vehicle sells for over £39606.50 ($50,000). This price gap highlights a potential challenge for Tesla: capturing the growing segment of budget-minded EV buyers.