Once the undisputed electric vehicle market leader, Tesla faces an unprecedented crisis due to disappointing earnings, intensifying competition, and growing policy risks. In response, the company is preparing to launch a new entry-level electric vehicle, the Model Q, in the first half of next year as a breakthrough strategy.
The Model Q, which aims to be priced under 30,000 USD after incentives, is expected to directly challenge the low-cost EV segment currently dominated by Chinese manufacturers.
Tesla’s Declining Sales and Profitability
In Q1 2025, Tesla reported its steepest net income and revenue drop in years. Vehicle deliveries fell 45% compared to 2024, while declining average selling prices and rising production costs pushed Tesla’s operating margin to its lowest since 2019.
This downturn has been attributed to several factors, including price cuts to clear old Model Y inventory, the increased use of Chinese-made LFP batteries, and reduced production volume.
In Europe, the situation is even more dire. Tesla’s sales in Germany and France have plummeted by over 60%, with consumers increasingly turning to a broader array of competing brands.
Globally, Tesla’s market share has also slipped—from 19% in 2023 to 17% in 2024—as Chinese EV makers like BYD continue to grow rapidly.
In the United States, reductions in EV subsidies and changes in tariff policies are further undermining Tesla’s price competitiveness and profitability.
Reflecting these challenges, Tesla’s stock price as of spring 2025 has plunged more than 50% from the beginning of the year, making it one of the worst-performing stocks in global markets.
Model Q: A Direct Counterattack Against Chinese Rivals
To overcome this crisis, Tesla has confirmed plans to launch its new budget-friendly EV, tentatively named the Model Q, in the first half of 2025. According to industry sources and foreign media, Tesla revealed the production schedule for the Model Q during an investor relations briefing with Deutsche Bank earlier this month.
Tesla CEO Elon Musk reaffirmed during the company’s Q3 earnings call last year that the plan to release an affordable vehicle in the first half of 2025 remained unchanged.
The Model Q will be a compact hatchback less than 4 meters in length. It will be equipped with a low-cost lithium iron phosphate (LFP) battery and is expected to offer a driving range of approximately 500 kilometers per charge.
Even if EV tax credits under the Inflation Reduction Act (IRA) are eliminated, the Model Q’s expected purchase price will be just 37,499 USD—over 6,000 USD cheaper than the current lowest-priced Model 3, which starts at 44,130 USD.
Tesla’s decision to adopt a hatchback design for the Model Q appears to target competitors like China’s BYD Dolphin and the Volkswagen ID.3—popular models in the European market, where hatchbacks are more favored.
Strategic Uncertainty and the Road Ahead
However, it remains uncertain whether the launch of the Model Q will immediately translate into improved performance for Tesla. Despite previous new model releases like the Cybertruck, Tesla has failed to secure the growth momentum it once projected.
There is still lingering optimism surrounding Tesla’s future technologies, such as Full Self-Driving (FSD), but these have yet to deliver short-term financial returns.
Moreover, stricter tariffs on Chinese-made batteries could hinder the profitability of the new budget model. Political instability under a possible second Trump administration poses a major strategic risk for Tesla’s business operations.
In the short term, the successful launch of the Model Q and the commercialization of autonomous driving may serve as turning points. However, without structural improvements in price competitiveness, particularly against Chinese rivals, Tesla’s crisis may continue to deepen over the long term.
