Quick highlights:

• Tesla's China-made EV sales fell 49.2% YoY in February, the lowest since August 2022.
• BYD continues to dominate, with a 90.4% surge in sales, launching budget-friendly smart EVs.
• Tesla updates Autopilot software in China and revamps Model Y to stay competitive.

Tesla is facing a tough battle in China, with sales of its China-made electric vehicles plummeting 49.2% year-on-year in February, reaching their lowest levels since August 2022. The company sold 30,688 units last month, while January-February sales totaled 93,926 units, marking a 28.7% decline compared to the same period last year, according to the China Passenger Car Association (CPCA).

While some of this decline can be attributed to the Lunar New Year holiday shift and partial Model Y production suspension for upgrades, Tesla is also feeling the heat from fierce competition in the world’s largest EV market.

BYD and other Chinese EV makers are gaining ground

Tesla’s biggest challenge in China comes from homegrown rivals like BYD, which saw a 90.4% surge in sales, delivering 614,679 passenger vehicles last month. The brand has aggressively expanded its lineup with affordable smart EVs, launching models priced below $10,000—a move that forced other automakers, including Geely and Leapmotor, to follow suit.

Meanwhile, Tesla's global exports have also taken a hit, with sales in Europe plunging 45% in January. This decline signals that Tesla’s dominance in key international markets is under pressure.

Tesla’s response: Autopilot update and Model Y refresh

In an effort to keep up with newer competition, Tesla introduced a long-awaited update to its Autopilot software in China, adding city navigation capabilities in February. The company also began deliveries of the revamped Model Y, a vehicle that remained China’s best-selling car in 2023 and early 2024.

However, competition for the Model Y is heating up, with at least six new rivals launching in the past year. Notably, Xiaomi’s upcoming YU7 crossover is expected to be Tesla’s toughest competitor yet, while Nio’s Onvo L60, designed to rival Model Y, is also ramping up production.

Nio’s CEO, William Li, expects the Onvo L60 to hit 20,000 monthly deliveries by March, which could further eat into Tesla’s market share.

What’s next for Tesla in China?

Tesla still enjoys strong brand recognition in China, but price cuts and software updates alone may not be enough to fend off the growing competition. With affordable smart EVs gaining traction, Tesla might need to introduce new models or localize production further to maintain its position in the highly competitive market.

With the Chinese EV price war intensifying, Tesla will have to step up its strategy to avoid losing more ground in its second-largest market.