Tesla has given its popular Model Y electric vehicle a refreshed look for 2025. And the first customers to be able to purchase it will be in China.
The Model Y relaunch in China, the company’s second-largest single-country market, reflects how stiff the competition has become for Tesla in the Middle Kingdom — and worldwide.
This month, Tesla reported its first annual decline in global vehicle sales, delivering 1.78 million vehicles in 2024, falling below analyst estimates.
China is both the world’s largest EV market and the largest manufacturer of EVs. It’s also home to aggressive competitors like BYD, NIO, and Xpeng, which have been gaining market share with lower-cost offerings that now match or even exceed Tesla and others in innovation and quality.
A Look at the Updated Model Y
Tesla’s new Model Y in China features a redesigned, sportier exterior with sharper body lines and modernized lighting, including a full-width LED front light bar.
The company has also addressed complaints about ride quality, touting what it says is improved suspension, wheels, and tires — as well as acoustic glass — for what it says will be a smoother, quieter ride.
The Tesla team has placed aesthetics and ride quality at a lower priority than its industry-leading technology.
Tesla is no longer the only game in town. It faces an onslaught from Chinese EV makers and legacy, luxury auto companies such as BMW and Mercedes-Benz that are introducing EVs with exceptional build quality and interior design, priced similarly to Tesla’s Model S and Cybertruck.
The updated Tesla Model Y will be built, like all of its vehicles in China, at the Shanghai Gigafactory.
There is no indication of when the updated Model Y will come to the States.
Why China Matters for Tesla
China accounted for $21.7 billion in Tesla’s 2023 fiscal year revenue — roughly 22% of its total. That’s down from 26% in 2021, underscoring the challenges Tesla faces in retaining its share of a hyper-competitive market marked by rapid innovation.
Tesla’s revenue in China fell by 13% in the first half of 2024 compared to the same period in 2023, but rebounded in Q3 after the automaker introduced aggressive price cuts and zero-interest financing options.
While Tesla is an American company, its cars sold in China are made in China, relying almost entirely on a local supply chain.
Its China-manufactured cars are also exported to other markets, including Europe and Australia. The company began making cars in China in 2019, receiving special incentives from the Chinese Communist Party.
What to Expect for Tesla
The incoming Trump administration has signaled its intent to revive trade wars not just with China, but also even American allies such as Canada and Mexico.
Musk has cultivated a close relationship with President-elect Donald Trump, but he faces opposition from within the MAGA movement to his views on China and immigration — both key to Tesla’s bottom line.
Musk is a fan of China. Like many other tech executives, Musk is a strong proponent of importing foreign skilled labor through the H-1B visa program.
He has also hailed Chinese workers, describing the Tesla China team as “the best quality, lowest cost and also low drama.”
The timing of the Model Y refresh is critical as Tesla stock (NASDAQ: TSLA) has fallen by nearly 15% since December 24, as investors worry about growing competition for the company in the U.S. and China and slowing EV demand.
Tesla is set to announce its Q4 earnings on January 29. Tesla’s valuation is increasingly under scrutiny, with its stock currently trading at over a 100x price-to-earnings (P/E) ratio — nearly twice that of Nvidia (NASDAQ: NVDA).
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