Tesla Bets On Low-Cost EVs in China After February Sales Hit Two-Year Low

Tesla Inc TSLA is eyeing the production of an affordable version of its popular Model Y in Shanghai, Reuters reported, citing unnamed sources familiar with the matter. The company plans to commercialize in 2026 at its Shanghai Gigafactory for its China market

The smaller size car will cost at least 20% less to produce than the refreshed Model Y, the report said

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The electric vehicle company is developing the model using existing production lines under a project dubbed “E41.” Reuters report added that it plans to launch a six-seat variant of the Model Y in China later in 2025.

Tesla’s China sales in February 2025 fell to 30,688, marking the lowest since July 2022. Deliveries slumped 51.5% from January 2025 and 49.2% from February 2024, SCMP reports.

The new Model Y has a revamped exterior and interior, a longer driving range, and adaptive headlights. Tesla reportedly received 200,000 orders for the new Model Y, which retails for a minimum of 263,500 yuan ($36,292).

Analysts told SCMP they expect Tesla’s self-driving system to boost Tesla’s sales in China, the leading automotive and EV market.

Tesla’s market share in China’s battery-only EV market fell to 10.4% in 2024 from 11.7% in 2023 as it battled intense competition from Xiaomi.

BYD and Xiaomi have launched dozens of models to compete with Tesla.

Tesla will also produce the budget model in Europe and North America, where sales have suffered.

Tesla’s weak sales in China for February aligned with its decline in Europe and Australia. The EV maker stock has plunged 37% year-to-date.

Tesla’s U.S. registrations dropped 11% in January, while rivals like Ford Motor Co F and Volkswagen AG VWAGY saw a 44% surge. Tesla’s EU registrations halved in January as brand sentiment and political backlash weigh on growth.

Tesla chief Elon Musk has acknowledged the challenges of running his business while working with President Donald Trump’s Department of Government Efficiency (DOGE). Tesla has faced backlash in the U.S. and Europe, with demonstrators criticizing Musk’s political activities.

JPMorgan expects Tesla to face its weakest quarter for car deliveries since 2022, citing Musk’s political activities. Analyst Ryan Brinkman cut Tesla’s first-quarter delivery forecast by 20%, from 444,000 to 355,000, below the consensus analyst projection of 430,000.

Brinkman also highlighted that Musk’s remarks on the Ukraine war, U.S. participation in NATO, and far-right political groups affected Tesla’s European sales.

Previously, other Wall Street firms like Goldman Sachs, UBS, and Wedbush Securities had echoed similar sentiments.

Price Action: TSLA stock is up 0.81% at $242.78 at last check Friday.

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