TLDRs;
- Tesla sales in China dropped for the sixth consecutive month, falling 9.9% year-on-year in August.
- China’s EV market surged 23% to 1.3 million units, while Tesla’s share shrank to just 4.4%.
- Domestic automakers like Leapmotor, Xpeng, and Xiaomi are offering cheaper EVs with advanced features, outperforming Tesla.
- Despite heavy investment in China, Tesla is losing ground globally as competition and consumer preferences shift.
Tesla’s grip on China, once a stronghold of its international expansion, is slipping.
According to the China Passenger Car Association (CPCA), Tesla delivered 57,152 Shanghai-made Model 3 and Model Y vehicles in August, down 9.9% year-on-year. This marks the sixth consecutive month of falling sales in the country.
While Tesla’s numbers contracted, the broader market told a different story. Electric vehicle deliveries across China surged 23% last month, reaching 1.3 million units. Tesla’s share of those sales fell to just 4.4%, a sharp decline from its 16% peak in 2020 and even below the 6.9% it held in 2024.
Rising Local Competition Takes the Lead
The decline is not simply the result of slower demand. In fact, China’s electric vehicle market is thriving, and domestic automakers are setting records. Leapmotor and Xpeng both reported their highest-ever monthly deliveries, while Xiaomi crossed the milestone of 30,000 vehicles in August.
These Chinese manufacturers are capitalizing on homegrown advantages. Backed by government subsidies and large-scale supply chain control, they offer models at far lower prices than Tesla. Leapmotor, for example, sells EVs starting at 89,800 yuan, just 40% of Tesla’s Model 3 price, while still featuring advanced driver-assistance systems.
Price differences like this are increasingly difficult for Tesla to counter, even with its recent 4% cut on the new long-range Model 3 and financing incentives.
Government Backing Transforms the Market
China’s government has played a pivotal role in shaping today’s competitive landscape. Between 2009 and 2023, Beijing invested around $230 billion into EV development, helping domestic players capture market share quickly.
The state also strengthened supply chain dominance, with Chinese firms now controlling more than 60% of global battery-grade lithium carbonate production. This gives local automakers a critical cost advantage that Tesla, as a foreign company, struggles to match.
The consumer base has also shifted dramatically. Nearly half of Chinese car buyers now prefer EVs for their next purchase, compared to just 11% in the United States. This enthusiasm for electric mobility, combined with lower-priced local options, has tilted the scales firmly in favor of domestic brands.
Tesla’s Strategic Crossroads
Tesla’s ambitious bet on China dates back to 2018, when it built its Shanghai Gigafactory in a record 10 months. The company envisioned producing half a million vehicles a year, backed by a $2 billion investment and hefty tax commitments.
But the landscape has evolved faster than Tesla anticipated. In 2019, when the factory began operations, car sales in China were in decline. Fast forward to today, and EVs make up over 50% of new passenger vehicle sales in the country, a transformation that outpaced Tesla’s forecasts.
Despite its massive infrastructure and strong brand recognition, Tesla now finds itself squeezed between domestic rivals offering cheaper yet competitive vehicles and global peers also eyeing China’s lucrative EV sector.
The company’s struggle is not limited to China. In the U.S., Tesla’s EV market share has tumbled from over 80% in its peak years to just 38% as of August 2025, according to Cox Automotive. Legacy automakers like Hyundai, Kia, and Volkswagen have aggressively expanded EV offerings, often with more appealing incentives than Tesla.
