Tesla, Inc. (TSLA) has long been rumored to release a budget model of its EV at the sub-$25,000 price point. With the project yet to come to fruition, rival EV makers are pushing ahead in this cost-competitive segment in China, the hot-and-happening EV market.

What Happened

Volkswagen AG (VWAGY) began selling its budget model ID.3 EV in China on Friday, the CnEVPost reported. The ID.3 is a compact EV that has been in production since 2019.

Shanghai-based SAIC Volkswagen, a joint venture between SAIC Motor (600104.SS) and Volkswagen, currently offers three versions of the EVs in China. The first model is priced at 159,888 yuan ($25,000) and the other models at 173,888 yuan each.

Why It's Important

Chinese EV startup XPeng, Inc. (XPEV) in mid-September launched its third mass-produced model, which is named the P5 sedan. The post-subsidy price of the sedan ranges between 157,900 yuan and 223,900 yuan.

Nio, Inc. (NIO), which has so far been focusing on the high-end of the market, is speculated to launch a budget model under a different brand name. The company could shed light on the model at its Nio Day 2021 scheduled for Dec. 18.

EV market leader Tesla is also eyeing a share of the low-tier market. The company has set up an R&D center in Shanghai to work on developing a more budget-friendly vehicle.

At Tesla's Battery Day in 2020, CEO Elon Musk said the $25,000 car will be released in 2023, and it may not have a steering wheel. Such a model could be churned out of the Giga Shanghai and distributed globally.

In a note released late Friday, Morgan Stanley analyst Adam Jonas said Tesla has the potential to market a vehicle at a $15,000 price point or less, likely this decade, if not before 2025. With Tesla late to the party, it remains to be seen how it can differentiate itself, if and when it decides to foray into the segment.