Amidst intensifying competition, Teslaβs China team is reportedly spearheading the development of a new, more affordable version of its popular Model Y SUV. The upcoming variant of this SUV has the E41 codename.
Local media outlet 36kr reveals that this upcoming vehicle will largely retain the existing Model Yβs core components like battery, powertrain, and chassis. The development follows a βdepopβ approach, an internal strategy focused on rapidly launching products by simplifying configurations while maintaining essential functionalities.
This move follows Teslaβs introduction of a de-featured, lower-priced Model 3 in Mexico last August. However, sources indicate that the new budget-friendly Model Y is primarily driven by the China team, highlighting the regionβs strategic importance. The project reportedly has a new alphanumeric codename, moving away from traditional English names.
The launch timeline for this lower-cost Model Y hinges on the market performance of the recently refreshed Model Y. Should the updated Model Yβs order numbers fall short of expectations, Tesla could potentially unveil the more affordable variant in the latter half of this year.
According to the source, the lower-priced Model Y will have the E41 codename and a 20%-lower price tag. It will be initially produced at the Tesla Gigafactory in Shanghai. Later, this model will be assembled in the U.S. and Germany.
This strategic maneuver is due to Tesla experiencing a notable sales decline in China. In February 2025, the companyβs total sales plummeted by 49% year-over-year to 30,688 units, marking its worst performance since July 2022. Specifically, Model Y sales saw a dramatic 77% drop to just 8,006 vehicles. This mirrors a broader global trend, with sales also declining in Europe and North America, contributing to a significant 15% stock price drop earlier this week.
While the refreshed Model Y garnered 200,000 orders before its delivery began in late February, initial delivery figures of just over 6,000 units in the first week fell short of typical volumes. This suggests a potentially lukewarm reception and indicates that the production ramp-up may not be the sole factor.
The core issue in China appears to be declining product competitiveness against rapidly evolving local EV manufacturers. Models like Xiaomiβs SU7 have outsold the Model 3 for three consecutive months, and upcoming rivals for the Model Y from brands like Huaweiβs Aito, Xiaomiβs YU7, and Xpeng pose a significant threat.
Despite these challenges, China remains Teslaβs largest market and a mature EV landscape where consumers prioritize practical aspects like range, features, and smart technology. Tesla still holds considerable brand appeal in the country. This lower-priced Model Y represents Teslaβs attempt to regain momentum by appealing to a wider customer base with a more accessible price point. However, the long-term success of this strategy remains to be seen in a fiercely competitive market.
