Tesla Developing Cheaper Model Y To Stem China Losses

Tesla is planning to make a less expensive variant of its popular Model Y to help stem its loss of sales in the mainland China market, the world’s biggest for electric vehicles, according to reports.

The new Model Y would sell for 20 percent less than the existing versions, which are priced from 263,500 yuan ($36,406, £28,160) to 303,500 yuan, according to local media reports citing unnamed sources.

The carmaker is planning to begin making the new model, codenamed “E41”, at its Shanghai factory using existing production lines, Reuters reported.

Smaller, cheaper

The new car is planned to be smaller and cost 20 percent less to produce than a refreshed Model Y introduced last year, the Reuters report said.

The model is primarily aimed at China, where price competition and increasingly advanced and stylish locally produced models have eroded Tesla’s edge over rivals.

It is also planned to be produced in Europe and North America, according to a source cited by Reuters, who did not provide details on the time frame.

The Model Y, a SUV crossover, was China’s best-selling car in 2023 and 2024 but is seeing increased competition from domestic firms, with at least six direct competitors launched in the past year.

Analysts have said Xiaomi’s YU7 crossover, planned for launch this year, could be the Model Y’s strongest competitor to date.

Xiaomi’s SU7 sedan has outsold Tesla’s Model 3 on a monthly basis since December.

Domestic competition

Xiaomi, best known as a smartphone maker, began selling cars only in April.

Tesla has also sent engineers to Baidu to help integrate the Chinese company’s map information with Tesla’s driver-assistance system to improve mainland lane markings and traffic signals, Reuters said in a separate report.

Deliveries from Tesla’s Gigafactory 3, its biggest by production, in February slumped 51.5 percent month-on-month and 49.2 percent year-on-year to 30,688 units, the lowest since July 2022.

In 2020, when it began operations, the factory’s mainland sales of about 180,000 units accounted for more than 16 percent of the country’s total EV sales, while last year’s production of 657,000 units amounted to only 6 percent market share.

In February the figure dropped to 4.3 percent.

An entry-level edition of Xpeng’s Mona M03 EV with preliminary autonomous driving technology is priced at 119,000, half the price of a Model 3.

Price cuts

Intense competition has led to increased price-cutting on the Chinese mainland, where a record 227 EV and petrol-powered models saw price cuts last year, compared to 148 in 2023 and 95 in 2022, according to the China Passenger Car Association.

Tesla in February launched its long-awaited autonomous-driving software, called Full Self-Driving in the US, in mainland China after a process of navigating regulatory requirements.

Tesla’s weak China sales were accompanied by similar declines in markets such as Europe and Australia as customers reacted with concern to the political engagements of chief executive Elon Musk.

The company experienced its biggest-ever single-day stock sell-off last week as investors registered dismay over falling sales.