Report: Tesla will launch a "low-cost version" of the Model Y next year, reducing costs by 20% to defend its market share in China

To protect its market share in China, Tesla 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 in 2026 to cope with the increasingly fierce 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 reduced by at least 20%. Currently, the retail price of the Model Y in China starts at 263,500 yuan.

According to 36Kr, this new vehicle will adopt a "depop" development approach, which aims to achieve a rapid product launch by simplifying configurations while maintaining the main functions unchanged.

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

The report states that although this model is primarily aimed at the Chinese market, there are also plans for production in Europe and North America.

Global Sales Decline and Stock Price Plunge: Tesla in Crisis

Tesla is currently facing a global sales crisis.

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

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

The challenges facing the Model Y are equally severe. The ZhiJie R7 under Huawei's HarmonyOS has accumulated over 80,000 orders within five months of its launch; models similar to the Model Y, such as Xiaomi's YU7, XPeng's G7, and Li Auto's i7, are all set to hit the market in 2025.

According to 36Kr, the recently launched refreshed Model Y has not performed as expected in the market. From the start of reservations on January 10 to the beginning of deliveries on February 26, although it received 200,000 orders, many of these included refundable deposits. In the first week after delivery, only over 6,000 refreshed Model Ys were delivered, whereas the usual figure is 10,000 or 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 in January and February this year were only 2,706 vehicles, a year-on-year decline of 70.6%. Sales in the domestic U.S. market have also declined for four consecutive months.

This global sales weakness has directly led to a sharp drop in Tesla's stock price. In Monday's U.S. stock trading, Tesla's stock price fell by 15%, marking the largest single-day drop since September 2020, reflecting growing investor concerns about the company's prospects

Can Pricing Strategy Work: Tesla's Weaknesses and Strengths

The challenges Tesla faces are not only related to pricing but also to the decline in product competitiveness.

In terms of intelligence, Tesla's former first-mover advantage is fading. For example, while domestic automakers' intelligent voice functions now support dialect input, continuous command input, and no wake word input, Tesla is still at the stage of requiring specific wake words.

In the field of intelligent driving, Tesla's FSD will not be available for use in China until early 2025, and its performance is below expectations. In contrast, domestic automakers have extended intelligent driving to all scenarios, even achieving high-difficulty tasks such as overtaking and merging, and autonomously leaving parking garages.

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 provide details on the extent of cost reduction, pricing, size, or specifications. In addition to the low-cost Model Y, Tesla also plans to introduce a six-seat version of the Model Y in China and bring FSD to the Chinese market.

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