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Tesla Model 3 hatchback may land as cheaper EV

CEO Elon Musk said it's "reasonable to assume" Tesla has an even more affordable electric car in the works.

Tesla city car sketch
An even cheaper Tesla? Sounds like it's on the table.

The Tesla Model 3 became perhaps the most hyped vehicle launch in modern history. It promised a long range, loads of tech and a $35,000 starting price.

While ordering a $35,000 Model 3 is technically possible, most Model 3s cost more and CEO Elon Musk appears set on the automaker building something more affordable. An Autocar report Tuesday suggests that car will be a Model 3 hatchback.

During an investor and analyst call, Musk said Tesla "will not succeed" in its mission if it doesn't continue to build more affordable electric cars, and that it "bugs" him Teslas aren't more affordable. The CEO added "it's reasonable to assume" the EV maker has something "compact" and more affordable in the pipeline.

Musk gave no explicit mention of a Model 3 hatchback, but the report claims this new, cheaper model will take that shape to better compete in Europe, where small runabouts are a practical choice for many. Tesla's upcoming Gigafactory in Berlin may eventually build the rumored Model 3 hatchback. Construction of the plant is underway and set for completion in the middle of next year.

Tesla did not immediately return a request for comment.

How affordable are we talking? Autocar, a UK publication, points to this new Tesla as a direct rival to the Volkswagen ID 3 and Peugeot e-208. The ID 3 will sell for £27,500 in the UK, which at the current exchange rate is roughly $36,000. It's not even clear if a presumably smaller Tesla would be on the menu for the US, but as it stands, European rivals will undercut the Model 3 in the months to come. Tesla's electric sedan starts at the equivalent of $57,000 in the UK. Here in the US, the Model 3 is far more affordable.

It's not the first time we've heard about a smaller, and presumably cheaper, Tesla model. Early this year, Tesla revealed a sketch for a city car of sorts and began hiring to design "Chinese-style" vehicles. A smaller, simpler EV for China could certainly influence a similar vehicle for Europe.

If a Model 3 hatchback comes to life, Tesla sure has a busy product rollout in the next few years. The automaker plans to launch the Semi next year after delays, and the new Roadster sometime in 2022. Then there's the Cybertruck, which should reach production late next year at a new Gigafactory in Austin, Texas.

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