Tesla readying Model 3 hatch to fight Volkswagen ID.3

Tesla says it will win new buyers and boost its global sales with an affordable new compact model likely to be a hatchback spun off its current Model 3 sedan.

The all-new entry-level model, which is expected to rival the Volkswagen ID.3 EV, is expected to be the first vehicle to roll off the all-new manufacturing facility Tesla is building near Berlin in Germany, and is set for launch in the same month the factory is completed – July 2021.

Announcing the new model in a call to investors, Tesla CEO Elon Musk said "we will not succeed in our mission if we don't make cars affordable", adding: "The thing that bugs me the most about where we are right now is that our cars aren’t affordable enough. We need to fix that".

During the call Musk didn't explicitly confirm the hatchback variant, telling stakeholders: "it would be reasonable to assume that we would make a compact vehicle of some kind and probably a higher-capacity vehicle of some kind”.

There's no word on how low Tesla wants to go when it comes to pricing, but the small Peugeot e-208 hatch is priced at around €31,000 ($A51,000) in France before government subsides, while in Germany the VW ID.3 costs €35,574 ($A58,675) before €9480 ($A15,640) in government subsidies is lopped off the its price.

Helping slash costs of manufacturing, Musk says the new Berlin factory will employ a giant aluminium casting machine that Musk describes as a "revolution in automotive body engineering".

Instead of traditional bending, welding and gluing, the new casting machine reduces the average number of parts used for a monocoque chassis from around 70 to just two, saving time, complexity and price, while boosting rigidity.

The development of the hatch, meanwhile, will be streamlined by extensive use of advanced virtual engineering that, controversially, Tesla says can replace real-world durability testing.

Another easy cost-cutting win would be shrinking the battery sizes available for its hatch. Currently the smallest lithium-ion battery pack available for the Model 3 is 50kWh, which provides for a range of around 350km, although the cheapest Volkswagen ID.3 Pro comes with a larger 58kWh battery that provides for a greater 426km range.

The arrival of the hatch could help turn around Tesla sales in Europe.

Despite sales of battery-powered cars rising by 34 per cent in the first half of 2020, the number of Teslas sold dropped by 18 per cent to 37,251 as buyers reportedly migrated to EVs offered by older, more established car-makers.

Currently the Renault ZOE remains Europe's best-selling electric car, with 36,000 sold in the first half of 2020, putting it just ahead of the 33,000 Model 3s sold in the same period.