By Raffaele Huang
SINGAPORE -- Tesla is developing a lower-cost Model Y sport-utility vehicle that would debut in China, hoping to regain ground after Chinese rivals with a price edge picked up market share.
Teams at Tesla's Shanghai plant are working to strip features from the current Model Y or simplify them so that the new model could be produced on existing manufacturing lines, people familiar with the matter said. Engineers aim to cut the production cost of the new car by 20% to 30% from the Model Y, which is priced at around $36,400 and up in China, the people said.
The budget-priced Tesla is set to be available in China first, and versions of it could be sold later in the U.S. and Europe, the people said. It would be sold alongside the current Model Y, which was recently refreshed.
Tesla is looking to defend its sales in China, the world's biggest electric-vehicle market, against heightened competition. Models from local carmakers typically cost less and offer more attractive features such as more advanced driver-assistance systems.
Tesla's sales in China rose last year, but the overall EV market grew faster. As a result, Tesla's market share in the fully battery-powered car sector fell to 10% from 12% a year earlier.
Tesla aims to start test-manufacturing the lower-cost Model Y as early as the third quarter this year and hopes to begin mass production in early 2026, the people said. Tesla could push up the timeline if the recently revamped Model Y fails to lift sales, they said.
Tesla didn't respond to a request for comment. Chinese tech publication 36Kr earlier reported the plan for a low-cost car.
Vaibhav Taneja, Tesla's chief financial officer, told analysts in January that the company was "on track to launch a more affordable model in the first half of 2025." He didn't elaborate.
In China, Tesla started delivering the refreshed Model Y in February. It has a sleeker look with slimmer headlights, akin to those seen on its driverless Cybercab and Cybertruck pickup. It added an eight-inch display screen for rear-seat passengers.
The upgrades helped Tesla catch up to competitors in China that have been offering such features for a while, but they resulted in the price tag rising by 5%.
In February, Tesla sold around 30,000 cars made in Shanghai, the worst monthly sales performance since July 2022, largely hit by weak demand from markets outside China. Tesla ships cars from Shanghai to places such as Europe and Southeast Asia.
An official at the China Passenger Car Association said the soft sales were partly because of Chinese consumers delaying purchases until the refreshed Model Y was available. He also said exports from the Shanghai plant were affected by consumer pushback outside China against Tesla Chief Executive Elon Musk, who is also an adviser to President Trump.
Musk has been talking for years about a possible budget-priced model and has taken a step in that direction in Mexico, where the carmaker last August introduced a lower-cost Model 3 sedan. The new version, available for about $37,300 or 15% less than the regular Model 3, offers seats made of cloth instead of leather and omits the display screen for rear-seat passengers.
In China, smartphone maker Xiaomi's SU7 sedan, which started deliveries last April, has outsold Tesla's Model 3 for three consecutive months. Xiaomi has said it would introduce an SUV this year that will compete head-on with the Model Y.
Tesla lags behind local rivals in offering advanced driving-assistance features, which have increasingly become standard for cars in China, mainly because of regulatory obstacles.
Tesla updated its driver-assistance software in February in China, but it has yet to introduce the equivalent of the latest software available to U.S. drivers. Musk has said restrictions imposed by authorities in both China and the U.S. have put Tesla in a quandary because it can't train the artificial-intelligence models behind the software in the way it would wish.
Write to Raffaele Huang at raffaele.huang@wsj.com
(END) Dow Jones Newswires
March 14, 2025 07:32 ET (11:32 GMT)
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