Tesla has revealed plans to make a cheaper version of its best-selling Model Y in Shanghai, according to three sources speaking with Reuters. With these plans, the EV car company is aiming to regain ground lost during a price war in its second-largest market.

Tesla is developing the model under a project codenamed “E41” and will build it using existing production lines. The vehicle will be in mass production at its biggest factory by output in 2026, said two of the sources.

Tesla turns to cheaper cars and White House support to revive dwindling business.

Aerial photo of Tesla’s Texas factory. Source: Tesla (X/Twitter)More details regarding the vehicle development

According to the sources, the car will come in smaller sizes and cost at least 20% less to produce than the refreshed Model Y, a mid-size SUV crossover that retails from 263,500 yuan ($36,351), launched late last year.

The Shanghai output will be mainly sold in China to defend market share, one of the sources has also said. The model’s production will not be restricted to America but will also include Europe and North America, though the source who revealed this did not provide a time frame.

All sources shared their comments under the clause of confidentiality as the project is not public knowledge. Tesla’s plans to get its Chinese team to create a lower-cost Model Y was first reported by 36Kr.

In January, Tesla revealed it was on track to deploy new, cheaper electric vehicle models in the first half of this year and would start testing a paid autonomous car service in June, news that had investors excited and overshadowed quarterly results that fell short of Wall Street expectations.

When the news was revealed in January, details like the size of cost reduction, pricing, size or specification were also conveniently left out so the world has had to wait to hear more about it.

The Model Y emerged as China’s best-selling car in 2023 and 2024 but has been struggling with strengthened competition from domestic peers, with at least six rival models popping up in the past year alone. All the extra competition made Tesla’s market share in China’s battery-only EV market slip to 10.4% last year from 11.7% a year earlier.

Xiaomi’s YU7 crossover is looking like Tesla’s strongest rival, but it is yet to launch and is expected to do so this year, analysts have said.

The SU7 sedan from Xiaomi — which up till April 2024 was mostly focused on making smartphones — has outperformed Tesla’s Model 3 with sales on a monthly basis since December.

Meanwhile, Tesla in recent times, has been less focused on announcing any completely new products other than its autonomous ‘Cybercab’ robotaxi scheduled for 2026. The EV company has instead been busy fending off its growing list of rivals, particularly in China, which has seen different versions of existing models developed in quick succession.

Tesla plans to launch a six-seat variant of the Model Y later this year in China, which has emerged a market of increasing importance as car sales have plunged in Europe and the U.S.

Tesla turns to cheaper cars and White House support to revive dwindling business.

Promotional photo of Tesla’s Model Y. Source: Tesla (X/Twitter)

Aside from its plans to deploy a cheaper model, Tesla has also gotten the White House to publicly endorse its product through Trump, who purchased a sleek red model that cost him $78,000 some days ago.

Tesla anticipates regulatory hell thanks to Trump’s tariff wars

Tesla, in a letter to the U.S. Trade Representative’s Office, which is available on the office’s website, has revealed that it and other major American exporters are currently exposed to retaliatory tariffs that could be leveled in response to President Donald Trump’s aggressive use of tariffs.

The comments reflect those of many U.S. businesses concerned by Trump’s tariffs, but this stands out because it comes from Tesla.

The letter, which was dated Tuesday, is among hundreds sent by companies to the office about U.S. trade policy.

Tesla’s CEO Elon Musk has presented himself as a close ally of Trump and has been leading the White House effort to shrink the size of the federal government as the head of the so-called Department of Government Efficiency (DOGE). His closeness to Trump initially caused his company’s stocks to surge as investors anticipated clear skies under Trump’s regime.

Unfortunately, even Musk did not see the tariff wars happening, and his company now seems to be inheriting some of the hate directed at the Trump administration, hence the declining car sales in areas like Europe.

It is unclear who at Tesla wrote the letter, as it was left unsigned, but it is assumed to be from Tesla as it was on company letterhead.

Tesla says it is crucial to ensure that the Trump administration does not “inadvertently harm U.S. companies” in its quest to address trade issues and enrich America.

The company says it is eager to avoid retaliation of the type it faced in prior trade disputes, which led to increased tariffs on electric vehicles imported into countries subject to U.S. tariffs.

“U.S. exporters are inherently exposed to disproportionate impacts when other countries respond to U.S. trade actions,” Tesla’s letter read. “For example, past trade actions by the United States have resulted in immediate reactions by the targeted countries, including increased tariffs on EVs imported into those countries.”

Trump is reportedly now considering imposing significant tariffs on vehicles and parts made around the world by early April. Tesla is one of the companies that capitalized on cheap labor and resources from other countries and has warned that even with aggressive localization of the supply chain, “certain parts and components are difficult or impossible to source within the United States.”

Big tent came a long way 😎

June 8, 2018 – 1st Model 3 coming out of GA4 at Fremont Factory

October 25, 2024 – 1 millionth Model Y built at GA4 pic.twitter.com/8SuyuxZbtu

— Tesla (@Tesla) October 26, 2024

The automaker added that companies will “benefit from a phased approach that enables them to prepare accordingly and ensure appropriate supply chain and compliance measures are taken.”

“As a U.S. manufacturer and exporter, Tesla encourages USTR to consider the downstream impacts of certain proposed actions taken to address unfair trade practices,” the EV maker wrote.

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