According to a recent report from insiders at the Shanghai Gigafactory, the Model 3 Highland refresh might come with a simplified version of Tesla’s Hardware 4.0 FSD system.

Rather than the expected HW 4.0, the Model 3 Highland is said to feature HW 3.5 with the removal of all radars. This decision mirrors Tesla’s approach with the Model Y and its HW4 kit, as observed during a recent teardown of the Model Y’s HW4 computer.

The infotainment chipset on the Model Y has half the memory capacity of the Hardware 4.0 kits installed in the premium Model S and Model X vehicles. This downgrade in computing power may align with the reference to “HW 3.5.”

Although the Model 3 Highland may have reduced computing, graphics, and audio chip power akin to the Model Y’s current Hardware 4.0 kit, it is expected to be equipped with the complete set of HW4 cameras. This set of HW4 cameras includes the front bumper camera that is used with the Cybertruck.

The underlying reason for Tesla’s divergence in FSD hardware capabilities among its lineup seems to be cost-driven. The Model 3 Highland refresh serves as a rehearsal for achieving a significant production cost reduction in Tesla’s proposed mass-market Model 2. Tesla wants to spend 50% less manufacturing the Model 2 than it spends on the Model 3.

And apparently, Tesla has been successful in this endeavor. The adoption of single-piece casting, substantial reduction in wiring harnesses, and the use of new materials has considerably reduced the manufacturing cost of the Model 3 Highland compared to earlier Model 3s.

According to NotebookCheck, the starting price for the Model 3 Highland is still expected to be around $27,000 despite the reduction in production cost. The improved manufacturing margins may ultimately contribute to increasing Tesla’s profits per unit of the Highland model.

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