Tesla Sales in China Hit 3-Year Low

Tesla (TSLA) is facing headwinds in China as sales in the world’s largest EV market slumped to a three-year low in October. This raises concerns about a potential full-year sales decline in the region, a critical growth driver for the company.

The pressure stems from intensifying competition from domestic electric vehicle manufacturers, including NIO (9866-HK) and Li Auto (2015-HK), as well as a broader economic slowdown that has fueled a bruising price war. Tesla’s China sales volume reached just 26,006 units last month, significantly impacting its market share, which contracted from 8.7% in September to 3.2% in October.

“Tesla is finding itself increasingly surrounded by a formidable array of Chinese automakers, each vying for market share,” according to Michael Dunne, CEO of Dunne Insights, a consultancy specializing in the Asian automotive market. “This competitive pressure is exerting downward pressure on Tesla’s sales figures.”

Xiaomi (1810-HK), the electronics giant venturing into the automotive industry, presents a fresh challenge in the premium EV segment. Despite recent safety concerns stemming from reported accidents, Xiaomi’s YU7 SUV and SU7 sedan have reported strong sales figures, signaling the company’s potential to disrupt the market. The company sold nearly 109,000 cars in the third quarter – compared with 170,000 for Tesla. Xiaomi’s EV unit even achieved profitability for the first time, suggesting a viable business model.

Leapmotor, a relative newcomer founded in 2015, is also gaining traction. Analysts attribute Leapmotor’s success to its in-house production capabilities, enabling efficient cost control. The C10 mid-sized SUV, priced significantly lower than Tesla’s Model Y, is proving attractive to budget-conscious consumers. The company’s recent joint venture with Stellantis (STLA) further strengthens its position, providing access to European markets and expertise.

Geely (175-HK) leads EV sales in China with its Geome Xingyuan hatchback. While not a direct competitor to Tesla, targeting a lower price point (under $10,000), the Geome Xingyuan’s success reveals a crucial trend: the growing demand for affordable value in the Chinese electric vehicle market. This demonstrates that consumers are looking for accessible EV options.

Huawei, the Chinese technology giant, is becoming an increasingly significant player through partnerships with established automakers. Collaborations with companies like Seres, Chery, and Beijing Auto have yielded popular models like the Aito M8 SUV, which caters to the high-end segment. This represents a strategic shift, where tech firms leverage their expertise in software and connectivity to enhance traditional automotive offerings.

While Tesla’s Model Y maintains a respectable position in the overall market, ranking 6th, challenges remain. CEO Elon Musk anticipates regulatory approval for the company’s Full-Self Driving (FSD) software in China by early 2026. However, analysts emphasize the critical need for Tesla to refresh its models to stay competitive in this rapidly evolving landscape.

Tu Le, founder of Sino Auto Insights suggests, indicates that 2026 will be a “pivotal year” for Tesla’s future in the Chinese market.

“The increasing sales momentum of local Chinese automakers like Xiaomi, BYD and XPeng,” Le notes, “is starting to impact Tesla’s sales.” The company needs to adapt to the pace in the Chinese EV market or face further deceleration.

Tesla’s overall third-quarter revenue saw a 12% increase to $28.10 billion, rebounding from previous periods. However, the company continues to grapple with sales declines in Europe, attributed to competition from established automakers like Volkswagen (VOW3-DE) and BYD (ZE594-CN), underscoring Tesla’s global competition concerns. Tesla’s ability to adapt to these pressures and capitalize on future opportunities. will be crucial for maintaining its position.