Tesla is set to introduce a more affordable version of its popular Model Y in Shanghai, according to three sources familiar with the matter. The move is aimed at recouping market share lost during a competitive pricing battle in its second-largest market.
The U.S. electric car manufacturer is working on this model under the project named "E41" and will manufacture it using existing production lines, the sources revealed. Two of the sources stated that mass production is scheduled to commence at its largest factory by output in 2026.
The upcoming car will be smaller and cost at least 20% less to produce compared to the recently updated Model Y, two sources disclosed. The Model Y, a mid-sized SUV crossover, starts at 263,500 yuan ($36,351).
The Shanghai production will primarily target the Chinese market to protect its market share, one source mentioned. Additionally, the model is planned for production in Europe and North America, although no specific timeline was provided.
The sources chose to remain anonymous due to the confidential nature of the project. Tesla has not commented on the matter when approached.
It was originally reported by 36Kr that Tesla's China team would lead the development of a more affordable Model Y. The project code name and the extent of cost reduction are reported here for the first time.
In January, CEO Elon Musk hinted at the launch of the model in the first half of 2025 without elaborating on cost reduction, pricing, or specifications.
The Model Y was China's best-selling car in both 2023 and 2024 but faces increased competition from local competitors who have introduced at least six rival models over the past year.
Analysts suggest that Xiaomi's YU7 crossover could pose a significant challenge once it is launched this year.
Tesla's market share in China's electric vehicle market dropped to 10.4% last year from 11.7% the year before.
Xiaomi's SU7 sedan has outperformed Tesla's Model 3 in monthly sales since December. Xiaomi, a major smartphone maker that ventured into the automotive industry in April, has rapidly gained traction.
Tesla has been focusing on defending its market position, particularly in China, by introducing various versions of existing models in rapid succession, as opposed to unveiling entirely new products. Sources have indicated plans to release a Model Y variant in China later this year, underscoring the growing significance of the Chinese market alongside Europe and the U.S.