(Bloomberg) -- Tesla Inc. will produce a new model that will cost €25,000 ($26,863) at its factory near Berlin, Reuters reported, as competition intensifies to produce more affordable electric vehicles for the European market. 

Chief Executive Officer Elon Musk announced the plan to staff last week when he visited the Tesla factory in Gruenheide, Reuters said Monday, citing an unnamed source. Musk didn’t say when production would start, according to the report. 

Tesla didn’t respond to a request for comment.

Musk’s visit and news of an affordable, locally-produced model for Europe comes a month after the European Union officially launched a probe into subsidies China has extended to manufacturers of EVs in the country. Tesla exports its Model 3 from its Shanghai plant globally, and is among carmakers that have likely benefited from certain state-led measures. The sedan is Tesla’s least expensive car, retailing from €42,990 in Germany. 

Read more: Tesla’s China Exports in Crosshairs of EU Anti-Subsidy Probe

The new Tesla would dramatically reduce the cost of its cheapest offering in Europe just as buyers rein back spending. Germany, the region’s biggest economy, has barely grown this year and consumers are still suffering from the fallout of the energy crisis. 

Carmakers are racing to bring down costs and make appealing, affordable EVs that can compete with Chinese brands such as BYD, Nio and MG seeking to woo customers on the continent. Stellantis NV’s Citroen brand last month started taking reservations for a new ë-C3 starting at €23,300, challenging Renault’s Dacia Spring, which starts at €20,800 in France. Meanwhile, Europe’s biggest carmaker Volkswagen AG plans to bring its own sub-€25,000 battery model to market by 2025.

Read more: VW Shows €25,000 EV to Compete Where Tesla Has Left an Opening

Germany is typically an expensive location for production with high wages and energy costs. On top of that, Tesla has faced difficulties at its Gruenheide factory, from environmental concerns over its water use to growing tensions surrounding working conditions and its staunch opposition to unions. The factory is home to its so-called giga-press technology, which the company has said will enable it to manufacture EVs more cheaply with fewer parts.

Musk has long foreshadowed building a cheaper EV, first mentioning the plan in 2018 and reiterating the push in 2020. Musk has a track record of missing his own deadlines and promised delivery times, including for new products such as the Cybertruck or software capabilities such as fully autonomous driving.

(Adds details on EU anti-subsidies probe in fourth, German economy in fifth paragraph)

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