Tesla’s new Model Y for China to be cheaper amid rising competition, mass production in 2026: Report

Tesla is reportedly set to introduce a more affordable version of its best-selling Model Y in China as it looks to counter growing competition in its second-largest market. The new model, developed under the codename “E41,” will be produced at Tesla’s Shanghai Gigafactory, with mass production expected to commence in 2026, according to a Reuters report.

The forthcoming variant will be smaller than the existing Model Y and will cost at least 20 per cent less to manufacture than the refreshed version launched in late 2023. The current Model Y, a mid-sized SUV crossover, has a starting price of 263,500 yuan. By reducing production costs, Tesla aims to strengthen its position in the highly competitive Chinese electric vehicle (EV) market.

While the new Model Y will primarily be sold in China, production is also planned for Europe and North America, though timelines for these regions remain undisclosed.

Tesla has been facing increasing pressure from Chinese EV manufacturers, which have launched several rival models in recent months. The Model Y, China’s best-selling car in 2023 and 2024, is now up against stiff competition, including Xiaomi’s upcoming YU7 crossover. Xiaomi, better known for its smartphones, entered the automotive market in April with its SU7 sedan, which has consistently outsold Tesla’s Model 3 since December.

In response to these challenges, Tesla is also preparing to launch a six-seat version of the Model Y later this year, a move that highlights the growing importance of China for the company as sales decline in Europe and the United States.

Chief Executive Elon Musk previously confirmed that lower-cost Tesla models would arrive in the first half of 2025 but provided no specifics on pricing or design. The new, budget-friendly Model Y will form part of Tesla’s broader strategy to defend its market share as its grip on China’s battery-electric vehicle sector weakens, with its share falling from 11.7 per cent in 2022 to 10.4 per cent in 2023.

Tesla has yet to comment on the development.

(With inputs from Reuters)