Tesla to Launch 'Affordable' Model Y Next Year to Compete In China

To defend its market share in China, tesla is secretly developing a low-cost Model Y.

According to insiders, Tesla is developing a Model Y in Shanghai with at least a 20% reduction in production costs. Codenamed E41, the vehicle will be manufactured using existing production lines and is targeted for mass production by 2026 to address the increasingly competitive environment in the Chinese market.

Citing sources familiar with the matter, the report states that this model will be smaller than the refreshed Model Y launched at the end of last year, with production costs reduced by at least 20%. Currently, the Model Y retails in China starting at 263,500 RMB.

The new vehicle will adopt a depop development approach, meaning it will simplify configurations while maintaining core functionalities to enable a faster rollout.

This move is a key strategy for Tesla to counter its declining market share in China. Data shows that Tesla's share in China's pure electric vehicle market has dropped from 11.7% in 2022 to 10.4% in 2023.

While the model is primarily aimed at the Chinese market, Tesla also plans to produce it in Europe and North America.

Tesla's Global Sales Slump and Stock Plunges

Tesla is currently facing a global sales crisis. In February 2025, Tesla's total sales in China were only 30,688 units, a 49% year-on-year drop, marking the worst performance since July 2022. Among these, Model Y sales were 8,006 units, a staggering 77% decline.

China, Tesla's largest global market, is also one of its most competitive. From December 2024 to February 2025, the Xiaomi SU7 outsold the Model 3 for three consecutive months, becoming the champion in the pure electric sedan market.

The Model Y faces equally severe challenges. The Huawei HarmonyOS-powered Zhijie R7 has accumulated over 80,000 orders in five months since its launch. Competing models like the Xiaomi YU7, Xpeng G7, and Li i7, which target the same segment as the Model Y, are set to hit the market in 2025.

The recently launched refreshed Model Y has underperformed in the market. From opening pre-orders on January 10 to starting deliveries on February 26, Tesla received 200,000 orders, including refundable deposits. However, in the first week of deliveries, only over 6,000 units were delivered, compared to the usual 10,000 or more in the past.

The crisis is not limited to China. In January 2025, Tesla's sales in Europe fell by 45%. In Germany, Tesla's total deliveries from January to February were only 2,706 units, a 70.6% year-on-year drop. Sales in the U.S. have also declined for four consecutive months.

This global sales slump has directly led to a sharp drop in Tesla's stock price. During Monday's trading session, Tesla's stock fell by 15%, marking its largest single-day drop since September 2020, reflecting growing investor concerns about the company's future.

Can This Strategy Work?

Tesla's challenges go beyond pricing; its product competitiveness is also declining. In terms of "intelligence", Tesla's early-mover advantage is fading. For example, while domestic automakers' smart voice systems now support dialect input, continuous command input, and wake-word-free operation, Tesla's system still requires specific wake words.

In the field of autonomous driving, Tesla's FSD only became available in China in early 2025 and has underperformed. In contrast, domestic automakers have extended their autonomous driving capabilities to full-scenario applications, including overtaking, cutting in, and even autonomously exiting parking garages.

Analysts believe that Tesla's strengths still lie in its stable product quality and excellent electric control capabilities, but these alone are insufficient to sustain growth in the Chinese market.

Elon Musk stated in January that Tesla would launch a low-cost model in the first half of 2025 but did not specify the cost reduction, pricing, size, or specifications. In addition to the low-cost Model Y, Tesla plans to introduce a six-seater Model Y in China and bring FSD to the Chinese market.

For investors, whether Tesla can maintain profitability while enhancing product competitiveness amid a price war will be a key factor determining its stock performance.