Tesla is navigating a difficult stretch, facing declining sales and a stock price in freefall. As competition intensifies, the company’s China team has stepped up, leading the development of a new vehicle model aimed at the country’s cost-conscious market.
Industry sources indicate that this upcoming model is essentially a lower-cost version of the Model Y. While it retains core components—including the battery, powertrain, and chassis—Tesla has made only minimal modifications.
“It’s being developed using the ‘depop’ method,” an insider told 36Kr. The approach, an internal Tesla strategy, streamlines vehicle configurations while keeping essential functions intact, allowing for faster product rollouts.
Tesla has tested this strategy before. In August 2024, the company launched a reduced-cost Model 3 in Mexico. However, while that project was primarily overseen by Tesla’s headquarters, the upcoming lower-cost Model Y is being driven by the company’s China team.
This project has also ushered in a shift in Tesla’s internal naming conventions. Sources say that new models no longer carry English names and are now identified by a combination of letters and numbers.
As for its launch timeline, Tesla’s decision will depend on sales of the facelifted Model Y. If orders for the refreshed version fall short of expectations, the lower-cost Model Y could arrive in the second half of 2025.
36Kr reached out to Tesla for confirmation, but the company has not responded as of publication.
A muted response to the refreshed Model Y
Tesla opened preorders for the facelifted Model Y on January 10, with deliveries beginning February 26. The company reportedly secured 200,000 orders during that period, though this figure includes refundable deposits, leaving the actual conversion rate uncertain.
In its first week of deliveries, Tesla handed over just over 6,000 units—a significant drop from past launches, when weekly deliveries typically exceeded 10,000 units. While production is still ramping up, the initial market response appears lukewarm.
Tesla’s website currently lists a two- to four-week wait time for the standard-range rear-wheel-drive Model Y. The long-range, all-wheel-drive version requires six to ten weeks for delivery. These figures suggest that order volumes have not significantly outpaced production capacity or internal forecasts.
The company is now entering a critical phase. In February, Tesla’s total sales in China plummeted 49% year-on-year, marking its worst monthly performance since July 2022. Model Y sales alone plunged 77%, with only 8,006 units sold.
The downturn isn’t limited to China.
In January 2025, Tesla’s European sales dropped 45%. In Germany, total deliveries for January and February combined fell to 2,706 units—a 70.6% year-on-year decline. In the US, Tesla’s home market, sales have declined for four consecutive months.
The global slump has taken a toll on Tesla’s stock price. On March 10, shares plunged over 15% in a single day—the worst drop since September 2020.
While political factors may have contributed to Tesla’s struggles in Europe and North America, the reason for its challenges in China is more straightforward: Tesla’s product competitiveness is slipping.
From December 2024 to February this year, Xiaomi’s SU7 sedan consistently outsold the Model 3, making it China’s bestselling pure electric sedan.
The Model Y is also under pressure.
Huawei’s Luxeed R7, developed under the Harmony Intelligent Mobility Alliance (HIMA), amassed 80,000 orders in just five months. Meanwhile, Xiaomi’s YU7, Xpeng’s G7, and Li Auto’s i7—all targeting the same price range as the Model Y—are set to launch in 2025.
Tesla has two options: improve product competitiveness or cut prices.
China remains Tesla’s largest market worldwide and one of the most advanced electric vehicle markets globally. Unlike in North America or Europe, where brand image and political factors can influence consumer sentiment, Chinese buyers prioritize tangible features such as range, performance, and smart technology. Tesla still enjoys strong brand recognition and consumer trust in China, making it the most favorable market for a potential turnaround.
Will a cheaper Model Y be enough?
When Tesla first entered China, it was viewed as an innovator, embodying a mix of technocentrism and futurism. However, Chinese EV brands have since evolved, pushing the envelope with smart features, particularly through integrating artificial intelligence.
Tesla, meanwhile, has struggled to keep pace.
Domestic competitors have introduced voice assistants capable of dialect recognition, multi-command processing, and wake-free activation. Advanced autonomous driving features, once reserved for high-end models, are now standard across multiple price tiers.
Tesla’s Full Self-Driving (FSD) software only launched in China earlier this year, and initial reviews have been mixed. The system reportedly struggles with local road conditions, and even Tesla’s own sales representatives advise customers to use it cautiously.
Meanwhile, Chinese automakers are moving beyond basic autonomy. Some of their EVs now offer seamless lane changes, automated parking lot exits, and self-driving capabilities in dense urban traffic.
Tesla has already tested a low-cost strategy in Mexico, where a reduced-cost Model 3 debuted with single-color ambient lighting, half-leather, half-fabric seats, and the removal of heated seats and a heated steering wheel—trimming USD 4,000 off the original price.
However, applying the same approach in China is risky. Domestic EV brands have redefined expectations for in-car luxury, offering large entertainment displays and advanced driver assistance systems. At times, Tesla’s minimalist interior has drawn flak for being too barebones in comparison.
If Tesla relies solely on price cuts, it faces an uphill battle.
Tesla has seen the benefits of aggressive pricing before. In late 2024, the company introduced a zero-interest, five-year financing plan in China, saving buyers RMB 15,000 (USD 2,100) in interest on a RMB 100,000 (USD 14,000) loan. The move temporarily boosted Model Y sales, but domestic competitors quickly countered with similar or better financing options.
The lower-cost Model Y may attract price-sensitive buyers, but Tesla cannot rely solely on discounts. Unlike competitors that continuously upgrade models, Tesla’s supply chain is less flexible, making frequent updates more challenging.
At best, a cheaper Model Y might provide short-term relief, but it does not resolve Tesla’s deeper struggles in China.
Tesla currently offers four models in China: the Model 3 and Model Y, priced between RMB 200,000–300,000 (USD 28,000–42,000), and the Model S and Model X, which start at RMB 600,000 (USD 84,000). This year, the company is expected to introduce two lower-cost versions of the Model 3 and Model Y.
Meanwhile, Tesla’s China team is working to bring the Cybertruck to market, though its prospects for mass adoption remain limited. Unlike in the US, pickup trucks have minimal appeal among Chinese consumers.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Xu Caiyu for 36Kr.