The electric car maker, known for its Roadster two-seat sports car and the current Model S sedan, hopes to show its next vehicle at the Detroit Auto Show in January 2015.
"This is hugely important for Tesla," said Thilo Koslowski, an auto industry analyst at Gartner. "This is ultimately the car that will make Tesla a household brand rather than just something in the premium segments."
The car likely will go on sale in 2016 and will be crucial to the brand's long-term survival. By moving into a higher-volume segment with a vehicle priced half as much as its other products, this latest model will truly test whether Tesla can crack into the mainstream market.
"No car company can live off 20,000-30,000 sales a year and be profitable in the long term," Koslowski said. Tesla is on pace to build about 21,000 copies of its only current vehicle, the Model S sedan. The brand hopes to double that number in 2014, when it begins production on the Model X, a minivan/SUV mash-up.
One key hurdle for Tesla in producing the new, smaller car will be finding the sweet spot of battery size, capacity and cost. To do so, it's essential that this new car hit its $40,000 target while pulling around 200 miles of range out of a smaller battery than what's currently in the Model S.
"That's pretty ambitious to get there," Koslowski said. "One hundred to 120 miles of range isn't enough for mainstream consumers to really feel comfortable."
This holy grail would also give Tesla a significant competitive advantage, as mainstream automakers likely wouldn't have a car with similar range and cost for at least another year or two, Koslowski said.
Also important for Tesla's success will be its ability to ramp up production to a much higher level than its current operations. The Model S is built at Tesla's Fremont, Calif., plant, and uses only about a quarter of the facility's 5 million square feet of space. That is where the Model X also will be built.
The X will use essentially the same drivetrain as the current rear-wheel-drive Model S, save for another electric motor driving the front wheels, making the X all-wheel-drive.
The vehicle will sit higher than its S brethren, but its footprint will be about the same. The X will use a pair of articulated gullwing-style doors for easier access to the second and third row of seats than the sliding doors of a minivan, Tesla said.
Pricing on this I'm-not-a-minivan Model X will be about the same as the S, which starts at $71,070 before any state or federal tax incentives. Tesla is already taking refundable $5,000 deposits for the X, though it won't say how many customers have plunked down their cash already.
The Model X will be the third vehicle to wear the Tesla badge, behind the current Model S and the Roadster, a sports car that is no longer in production. Tesla wouldn't confirm the name of the model debuting in 2015, though it's believed the brand is considering calling it the Model E.
Internally, Tesla is referring to it as the "third-generation model," since its production volume will be on a different scale than the Roadster (first generation) and Model S and X (second generation).
Regardless of its name, the timeline of this smaller mass-market car following in the footsteps of a higher-priced luxury car roughly follows a plan that Tesla's Chief Executive Elon Musk outlined in a 2006 blog post.
"The strategy of Tesla is to enter at the high end of the market, where customers are prepared to pay a premium," Musk wrote in a post titled "The Secret Tesla Motors Master Plan (just between you and me)." "Then drive down-market as fast as possible to higher unit volume and lower prices with each successive model."