Tesla is developing a more affordable version of its Model Y SUV in China, aiming to reduce production costs by at least 20% to strengthen its position in the competitive Chinese electric vehicle (EV) market.
The new variant, internally referred to as project “E41,” is expected to be smaller and will utilize existing production lines at Tesla’s Shanghai Gigafactory. Mass production is slated to begin in 2026. While the primary market for this model is China, there are plans to manufacture it in Europe and North America as well.
This initiative comes as Tesla faces intensified competition from domestic manufacturers like BYD and Xiaomi. Notably, Xiaomi’s upcoming YU7 crossover is anticipated to be a strong competitor to the Model Y. Despite the Model Y being China’s best-selling car in 2023 and 2024, Tesla’s market share in the battery-only EV segment declined to 10.4% last year from 11.7% the previous year.
In response to these challenges, Tesla is also planning to introduce a six-seat variant of the Model Y in China later this year. Additionally, CEO Elon Musk has indicated that lower-cost models are expected to be introduced in the first half of 2025, though specific details have yet to be disclosed.
