In order to protect market share in China,$Tesla (TSLA.US)$is secretly developing a low-cost Model Y.
According to a report by Reuters on Thursday, Tesla is developing a Model Y in Shanghai with production costs reduced by at least 20%, codenamed 'E41', which will be manufactured using existing production lines, aiming for mass production by 2026 to cope with the increasingly competitive environment in the Chinese market.

The report cites sources familiar with the matter stating that this model will be smaller than the refreshed Model Y launched at the end of last year, with production costs at least reduced by 20%. Currently, the retail price of Model Y in China starts at 0.2635 million yuan.

According to 36KR Holdings, this new vehicle will adopt a 'depop' development approach, which means that the core functionality remains unchanged while simplifying configurations for a faster product launch.

This move is a key measure for Tesla to respond to the decline in its market share in China. Data shows that Tesla's share of the pure electric vehicle market in China has fallen from 11.7% in 2022 to 10.4% in 2023.

The report states that while this model is primarily aimed at the Chinese market, there are also plans to produce it in Europe and North America.

Global sales slump and stock price crash: Tesla is in crisis.

Tesla is currently facing a sales crisis on a Global scale.

In February 2025, Tesla's total sales in China were only 30,688 units, a year-on-year drop of 49%, marking the worst performance since July 2022, with Model Y sales totaling 8,006 units, a staggering year-on-year decline of 77%.

As Tesla's largest market globally, China is also one of the most intensely competitive markets - from December 2024 to February 2025, sales of the Xiaomi SU7 have surpassed Model 3 for three consecutive months, becoming the champion of the pure electric sedan market.

The challenges facing Model Y are equally severe. The ZhiJie R7 from Huawei Hongmong's Intelligent Driving, after five months since its launch, has accumulated orders exceeding 80,000 units; similar positioned models such as Xiaomi YU7 and Xiaopeng G7, Li Auto i7, etc., will all be introduced to the market in 2025.

According to a report from 36KR Holdings, the newly launched refreshed Model Y is performing below expectations in the market. From the opening of bookings on January 10 to the start of deliveries on February 26, although it received 200,000 orders, these included refundable deposits. In the first week after delivery, the refreshed Model Y delivered only over 6,000 units, whereas in the past it had typically been 100,000 units or even more.

The crisis is not limited to the Chinese market. In January 2025, Tesla's sales in the European market fell by 45%. In Germany, Tesla's total deliveries for January to February this year were only 2,706 units, a year-on-year decline of 70.6%. Sales in the domestic market in the USA have also dropped for four consecutive months.

This Global sales weakness has directly caused Tesla's stock price to plummet. In Monday's trading, Tesla's stock price fell by 15%, marking the largest single-day drop since September 2020, demonstrating increasing investor concerns about the company's future.

Can the pricing strategy be effective: Tesla's weaknesses and strengths.

The challenges Tesla faces are not just price issues, but also a decline in product competitiveness.

In terms of intelligence, Tesla's previous first-mover advantage is disappearing. For example, while domestic automakers' intelligent voice functions already support dialect input, continuous command input, and no wake word input, Tesla is still at the stage of requiring specified command wake-up.

In the field of intelligent driving, Tesla's FSD will not be usable domestically until early 2025, and its performance is below expectations. In contrast, domestic automakers' intelligent driving has extended to all scenarios, capable of high-difficulty tasks such as overtaking and maneuvering out of parking garages independently.

Analysis suggests that Tesla's advantages still lie in its stable product quality and excellent Electronic Control capabilities, but relying solely on these advantages is insufficient to maintain growth in the Chinese market.

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

For investors, whether Tesla can maintain profit margins during the price war while enhancing product competitiveness will be a key factor determining its stock price performance.

Editor/ping