Tesla's rivals in China are launching a wave of new Model Y killers to take on the best-selling SUV

• Tesla is battling backlash to Elon Musk's politics in the US, but in China, it faces a different problem.
• Local rivals are launching a wave of "Model Y killer" cars to take down Tesla's best-selling EV.
• Analysts told BI that Tesla is falling behind high-tech new models like Xiaomi's YU7.

China may not care about Elon Musk's politics, but that doesn't mean things are going well for Tesla there.

Despite Tesla's sales in China rising in June amid upbeat sales of the refreshed version of its Model Y SUV, the electric vehicle giant is stuttering in its second-largest market.

Tesla sold 129,000 vehicles in China during the second quarter of 2025, according to data from the China Passenger Car Association, down nearly 12% from the same period last year.

Sales of the Model Y, Tesla's most popular car and China's best-selling SUV, have been flat since 2022 — and it's now set to face a new wave of competition.

Last month, smartphone giant-turned EV maker Xiaomi launched its YU7 electric SUV, which amassed more than 240,000 preorders in 24 hours, while EV startup Xpeng debuted the G7, its Model Y rival, a week later to strong early demand.

Both cars are priced below the Model Y, and are set to be joined by Nio's L90, another electric SUV that will go on sale later this month.

Lei Xing, an independent analyst covering the Chinese auto industry, told Business Insider that Tesla has weathered attempts to dethrone the Model Y before.

But, he added, Elon Musk's automaker has never faced a challenge quite like the YU7, which has taken China by storm.

"I think it's the Model Y killer. There's been a lot of rivals that have come before it, and the Model Y has been very resilient, but the YU7 seems to be the one that can overtake it," he said.

Xiaomi's EV revolution

Xiaomi scored a massive hit with its first EV, the SU7, selling more than 200,000 since it launched in March 2024.

The company faced a crisis earlier this year when an SU7 was involved in a fatal highway crash, but the sedan has continued to sell well.

Lei Xing said that Xiaomi's cars had proved extremely popular with women and young people. In comments posted on social media last week, Xiaomi CEO Lei Jun said that the average age of YU7 preorder holders was 33, and around 30% came from women.

Lei Xing added that the company had successfully tapped into a massive, tech-obsessed consumer base of "fanatics" that already own multiple Xiaomi products.

He said one of the earliest SU7 buyers in Shanghai told him he owned around 300,000 yuan ($41,000) of Xiaomi products in his home in addition to the company's first EV.

"Xiaomi over the last 15 years has expanded their product lineup to all sorts of devices. They've built this home-car-human connection. And now that last missing piece is the car," said Lei Xing.

Snow Bull Capital CEO Taylor Ogan, whose Shenzhen-based firm invests in the EV and battery industry, told BI that Xiaomi's tech ecosystem had handed the company a major advantage in China's ultra-competitive market.

"My home has over 15 Xiaomi devices, my TV is Xiaomi, my bed is a Xiaomi. This is very common in China — once you're in the ecosystem, it's really hard to get out of," Ogan said.

Losing ground on tech

Lei Xing said that while Tesla was still the "benchmark" for many Chinese automakers in terms of tech, the US firm was now behind on some key features, such as advanced driver assistance systems.

Musk has previously said that Tesla's attempts to launch its Full Self-Driving system have been hampered by Chinese rules around data sharing.

The company launched a limited version of FSD in China earlier this year, but it charges Tesla owners around $8,000 to access it, unlike many of its rivals, who have begun offering similar systems for free.

"On ADAS, because of some of the regulatory restrictions, Tesla is behind in China," said Lei Xing.

"These features are becoming commoditized. The BYD Seagull offers highway ADAS as standard. Customers have come to expect these kinds of things," he added.

Ogan said that Tesla still has a good reputation in China, but the company's ageing product lineup and tech have left it vulnerable.

"Tech-wise, there are probably 10 companies that have better tech. Xiaomi definitely has better tech than Tesla. It has better motor tech, it has better infotainment, and it actually makes a lot of its own tech," Ogan said, who is an investor in Chinese auto giant BYD.

"Tesla is just refreshing the bumpers and their headlights and adding an LED strip in the car. That might work enough in Western markets, but it's not enough in today's market here," he added.

Ogan said that Tesla's previous tactic of lowering prices to fend off competition would likely be less effective now that many of its rivals offer cheaper models, and said that some Tesla showrooms had turned to new tactics to boost sales.

"The one that's nearest to me, almost every night they're hiring street performers to perform outside of their showroom to try to drive traffic," he said.

'They're nowhere to be seen'

One thing that might help Tesla fend off the threat of the YU7 in the short term is the painfully long delivery times for Xiaomi's new EV.

The company's website is advertising delivery times of up to 60 weeks for the YU7. Lei Xing said some customers unhappy about the prospect of waiting over a year for the high-tech SUV might instead turn to the Model Y.

Xiaomi CEO Jun himself backed that idea, telling his social media followers they should consider buying rival models like Xpeng's G7 and the Model Y if they're in a "hurry."

In the long run, however, that is unlikely to solve Tesla's main problem in China: a lack of new products.

"They haven't launched a new product in years," Tu Le, the managing director at Sino Auto Insights, told BI.

"The reality is that Tesla doesn't face an Elon personality challenge in China like it does in the rest of the world. It is a lack of competitive products in the Chinese market that is causing Tesla problems," he added.