Tesla is set to introduce a lower-cost version of its best-selling Model Y in Shanghai, aiming to recover market share lost during a price war in its second-largest market, according to sources familiar with the plan. The new model, developed under the project codename “E41”, will utilize existing production lines at Tesla’s largest factory by output, with mass production set to begin in 2026.
The upcoming Model Y will be smaller and is expected to cost at least 20% less to produce than the refreshed Model Y launched late last year, which is currently priced starting from 263,500 yuan (~$36,351). This price reduction is part of Tesla’s strategy to defend its market position, particularly in China, where competition from domestic electric vehicle (EV) manufacturers has intensified.
While primarily aimed at the Chinese market, the new model is also planned for production in Europe and North America, though timelines for these markets are not yet specified. Tesla has not commented on the project.
The decision to develop a more affordable Model Y aligns with Elon Musk‘s earlier statement that Tesla would introduce lower-cost models in the first half of 2025, though further details on the exact cost reductions, pricing, and specifications were not disclosed at the time.
In 2023, the Model Y was China’s best-selling car, but its market share has since slipped, now standing at 10.4%, down from 11.7% in the previous year. Tesla faces increased competition from local companies, with models like the YU7 crossover from Xiaomi becoming strong rivals. The YU7 has already outsold Tesla’s Model 3 on a monthly basis since December.
As Tesla contends with rising competition in China, it has focused on introducing various versions of existing models rather than unveiling entirely new products, aside from the Cybercab robotaxi slated for 2026. A six-seat version of the Model Y is also expected to launch in China later this year.