The Electric: Xiaomi's Latest EV Will Make It Harder for Tesla To Grow This Year
Over the past year, Chinese smartphone maker Xiaomi has shown up two formidable U.S. brands: First, it released an electric car, something that Apple failed to do, despite spending an estimated $10 billion and a decade trying.
Then that EV—the Xiaomi SU7 sedan, the company’s first—outsold the Tesla Model 3 in China, 186,112 units to 171,519, from its release last March through February, according to the Chinese Passenger Car Association, which tracks auto sales in the country. Over the first two months of 2025, the SU7 has widened its lead, outselling the Model 3 by 74%, 46,625 units to 26,780.
Now, Xiaomi is going after Tesla’s flagship vehicle—the Model Y crossover SUV, the top-selling car in China in 2023 and 2024. In June or July, Xiaomi will release the YU7 crossover SUV in China, and many observers of the country’s auto industry expect the vehicle to be competitively priced and cut into Model Y sales.
Troy Teslike, the Twitter handle of a widely followed Tesla analyst, predicts Model Y sales will be 10% lower this year than they would have been without competition from the YU7, though he thinks the hit to Tesla could be greater. Lei Xing, former editor-in-chief of China Automotive Review, says the YU7 “will be the biggest Model Y killer yet.”
Tesla isn’t standing still: Last week, the Chinese tech news site 36kr reported that Tesla’s Shanghai facility had developed what appeared to be a cheaper, stripped-down version of the Model Y, with plans to release it in China. In a followup on Friday, Reuters reported that Tesla was calling the car the “E41” inside the company, that it was smaller than the current Model Y and cost 20% less to produce. According to the report, the car will reach large-scale production next year.
Even if true, that minimalist car would not be an answer to Tesla’s sales woes. Gary Black, managing partner of The Future Fund, tweeted that Tesla could only win substantial new sales by vaulting itself into a new industry segment, such as compacts. “Stripped down Model 3/Y vehicles would simply cannibalize the more expensive variants” of the cars, Black wrote.
Either way, the threat to the Model Y in China—Tesla’s second-largest market—reflects Tesla’s shift over the last year from a hypergrowth pioneer of the EV market to one facing a possible second year of shrinking global sales. Teslike forecasts that Tesla’s worldwide sales of its vehicles will decline 5.7% this year from 2024, after falling 1.1% in 2024 compared with the prior year.
Tesla sales in China increased 8.8% last year though revenue dropped amid a price war. Its sales in China could grow again this year but the Xiaomi SUV seems likely to erode the margin it achieved in 2024. “While the Model Y and Model 3 are still strong sellers in China,” Ed Kim, president of research firm AutoPacific, said new Chinese EVs including the YU7 and SU7 “are affordable, they're packed with tech, very relevant and tech that actually does make your life easier.”
Tesla opened its Shanghai gigafactory in 2019, and sparked China’s EV mania. Two years later, Xiaomi, until then a maker of smartphones and appliances, began developing an EV, as we reported. At the SU7 launch in Beijing last year, CEO Lei Jun targeted Tesla, claiming the car was superior to the Model 3 in most respects. He priced it $4,000 below the Model 3, in line with Xiaomi’s aggressive merchandising of smartphones.
Xiaomi is likely to undercut the $36,400 Model Y on price as well; one estimate is that the YU7 will initially go for $34,500. Last year, Lei told journalists that the company lost money selling cars, but said he was aiming for market share. Xiaomi has a big advantage: It owns stakes in more than 70 EV-related companies, from lithium mines to battery makers and electrolyte manufacturers, giving it a reliable supply chain.
Some early reviewers have compared the YU7’s styling to that of a mini Ferrari. It has a glass roof, and is fitted with lidar, a sensor that uses lasers, suggesting that Xiaomi will offer advanced driver assist features. The company says the car’s lithium-iron-phosphate battery will deliver roughly 288 miles on a charge.
If Tesla wants to hold its own, it will have to move faster than Xiaomi.