BYD’s Popularity Surges in China While Tesla Faces Challenges

Tesla’s operations in China appear to be in decline, suggesting that its peak performance in the world’s largest electric vehicle market might be fading.

According to data from China’s Passenger Car Association, Elon Musk’s automotive company has experienced a downturn in China for five consecutive months on a year-over-year basis. Shipments fell by 49% in February compared to the previous year, totaling just 30,688 vehicles — the lowest monthly figure since July 2022, when only 28,217 EVs were shipped, during the peak of the Covid pandemic.

Recently, Tesla’s Shanghai factory has undergone retooling of some production lines for enhanced efficiency and to reintroduce the popular Model Y, which explains the decrease in output and the time needed for recovery. However, the downward trend was already noticeable before these changes.

The chart illustrates the market share of the top 12 car manufacturers in China by sales across all types of vehicles — electric, hybrid, or conventional. Tesla sits at No. 11, representing less than 5% of the market. In fact, the trend lines for most international car manufacturers are inclining downward rather than upward.

Enter BYD Co. After halting production of fully internal combustion-powered vehicles in March 2022, BYD’s market share is approaching 15%. In the previous month, it sold over 318,000 fully electric and hybrid passenger vehicles, reflecting a remarkable 161% year-on-year increase. Additionally, BYD set a new record for overseas sales at 67,025 units.

This success is a significant factor contributing to Tesla’s struggles.

Read: Tesla sales plummet 45% in Europe as Musk engages in controversial politics

While Tesla’s sales are sharply declining in other regions — such as a 76% drop in Germany to just 1,429 cars last month, even as overall EV registrations surged — in China, the disappointing shipments can largely be attributed to a limited and outdated product range, particularly when compared to the more contemporary and appealing offerings from BYD and others.

Data from the end of the year placed Tesla’s share of domestic sales at 2.6%, its lowest in 12 months, as reported by the China Automotive Technology and Research Center.

Morgan Stanley noted earlier this month that it expects Tesla’s presence in China “to continue to decline systematically.” While the country represented 21% of Tesla’s total revenue in 2024, analysts predict that this will decrease to around 6% to 7% by 2030.

Another chart reveals how BYD has encroached upon Tesla’s traditional market segment.

Both the Model Y and Model 3, the two vehicles produced in Shanghai, have seen price reductions, but they still cost around $33,500 on average.

In contrast, BYD’s best-selling model this year in China, a sporty hatchback known as the Song Plus, has seen its prices cut by between 8% to 18%, depending on specifications. The priciest Song Plus EV is around $21,000, a much lower price point than Tesla vehicles.

Furthermore, BYD’s popular model, the Seagull, which has attracted approximately 82,435 buyers this year, has an average price of just $9,900.

Chinese automakers have also significantly enhanced their offerings in localized software designed for domestic driving conditions.

Earlier this year, BYD announced that it would make advanced driver-assistance features accessible to more consumers by incorporating its God’s Eye technology into even its most affordable models. As a result, features like lane-keeping and adaptive cruise control are now available to a broader audience, not just those who can afford high-end vehicles.

Geely Automobile Holdings Ltd., positioned as China’s fourth-largest carmaker by market share, revealed last week that it would introduce its AI-powered pilot system across all its brands, including Galaxy, Zeekr, and Lynk. This G-Pilot technology will provide cars with capabilities to navigate highways and park autonomously.

Tesla is not remaining stagnant. In addition to the highly anticipated refresh of the Model Y — now featuring a thin LED light stretching across its front, reminiscent of the Cybertruck — last month, Tesla activated driver-assistance features in China comparable to its Full Self-Driving (FSD) offerings in the USA. These capabilities will be available for customers paying 64,000 yuan ($8,800), an amount that nearly rivals the cost of an entire vehicle from BYD.

For Tesla, reevaluating its pricing strategies for both its driver-assistance features and its vehicles is crucial.

Implementing tiered FSD packages or a subscription model, similar to that in the US, could enhance the attractiveness of its EVs. Chinese consumers place a high value on intelligent software capabilities in cars, presenting an opportunity for Tesla amid declining public interest in Musk.

Tesla may also consider increasing the use of locally sourced components and tapping into China’s strong supply chain, ensuring it’s not just manufacturing vehicles powered by electricity, but also driven by advanced technology.

BYD has a solid understanding of the dynamics of the domestic market. The critical challenge for the company will be whether it can successfully replicate its achievements in major automotive markets outside China, despite potential tariff issues. It will require substantial investment and time to cement its brand internationally.

© 2025 Bloomberg

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