China’s electric vehicle market is becoming increasingly competitive, with Tesla facing shrinking market share as local automakers gain momentum.

While Tesla’s Model Y remains a top seller, aggressive pricing and rapid innovation by Chinese brands are reshaping the world’s largest EV market.

Tesla’s Shanghai factory continues to assemble the Model Y, which emerged as the best-selling SUV in China in 2025, outperforming both electric and petrol-powered rivals.

Despite this achievement, Tesla’s broader performance in the mainland market has weakened amid rising competition.

Chinese EV makers gain momentum

Chinese EV manufacturers, led by BYD, the world’s largest electric vehicle maker, recorded increased deliveries in 2025. Their success has largely been driven by lower-priced models, which have appealed to millions of middle- and low-income consumers.

However, profitability remains a challenge. Out of more than 50 EV makers operating in China, only a small number are profitable due to heavy investment in research and development and an ongoing price war that continues to squeeze margins.

Tesla’s declining market share

In 2025, Tesla’s deliveries in China fell 4.8 per cent year-on-year to 625,698 vehicles, accounting for 4.8 per cent of total nationwide EV sales, according to the China Passenger Car Association (CPCA).

Tesla’s market share has steadily declined from over 16 per cent in 2020, when the Shanghai factory began producing the Model 3, to 6.9 per cent in 2024. Analysts attribute the drop to mounting competition from domestic automakers offering premium models with intelligent features similar to Tesla’s vehicles.

Xiaomi enters EV race with SU7

Smartphone giant Xiaomi entered the EV market by delivering its SU7 sedan from March 2024. Leveraging its strong smartphone brand, Xiaomi attracted buyers with an intelligent vehicle featuring early-stage autonomous driving capabilities and a sophisticated digital cockpit.

The basic Tesla Model 3, priced at 235,500 yuan, is 9 per cent more expensive than Xiaomi’s SU7, giving the Chinese brand a pricing advantage.

Xiaomi’s rapid rise has also drawn scrutiny. In March, three people were killed in an accident involving an SU7 in Tongling, Anhui, while the driver assistance system was active. The incident prompted Chinese authorities to tighten oversight of early-stage autonomous driving technologies.

In October, another accident involving an SU7 Ultra model in Chengdu, Sichuan, killed a 31-year-old man. Local media reported that bystanders were unable to open the car doors as the vehicle burned.

Xiaomi responds with safety focus

Xiaomi founder and CEO Lei Jun said in November that safety would be a top priority in future vehicle designs. Earlier this month, the company unveiled a refreshed SU7 with a driving range exceeding 900 kilometres on a single charge.

Presales for the updated SU7 began at 229,900 yuan, 6.5 per cent higher than the existing version. The top-tier model offers a 902km range, compared with 830km for the current Pro variant.

Despite Tesla’s declining share, analysts say it may be too early to count the company out.
“Because the Model Y remains the bestselling SUV in China, it is too early to conclude Tesla cannot regain its lost ground,” said Gao Shen, an independent analyst based in Shanghai.

He added that many domestic EV makers remain under pressure to break even, while some face ongoing concerns about vehicle safety and reliability.