Tesla Developing Lower Priced Model Y in China, “Market Response to Tesla’s Revamped Model Y Is Not Optimistic.”

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It’s no secret — Tesla sales have been down massively in 2025, and that’s after they declined in 2024 compared to 2023! That’s been the case around the world. The one explanation that is most hopeful for Tesla is that the switch to a new, upgraded Model Y is causing this — production lines had to be paused to be reworked, and buyers are delaying purchases because they want the new Y more than the old one.

With China being the first country to get the new Model Y, we can look there for some clues on how things are going. One clue just came out, and it doesn’t definitively tell us that Tesla Model Y demand isn’t as good as hoped, but it could be a sign of that. Reportedly, Tesla is already working on a cheaper version of the Model Y. It’s possible Tesla is doing this because it doesn’t see the demand it needs for the new Model Y. That said, it’s also possible Tesla wants to grow its sales and sees expansion into a lower cost category as a way to do that. The question is really whether this is more of a defensive or offensive move.

The lower priced Model Y will reportedly be smaller, cost about 20% less, and is planned for launch in 2026 (probably). It’s codenamed the E41 according to reports out of China. “It was developed through the depop method,” those in the know told 36kr. “People familiar with the matter revealed that depop is a development idea within Tesla, which is to quickly launch products by simplifying configurations while keeping the main functions unchanged,” the outlet adds.

Regarding the earlier mentioned launch of the new Model Y, the important note is that if its launch is not up to expectations, Tesla will launch the smaller, cheaper Model Y sooner — before the end of 2025. Also, according 36kr, there are signs already that demand isn’t as high as early reservations implied:

“36Kr previously reported that from the opening of pre-orders on January 10 to the start of deliveries on February 26, Tesla’s revamped Model Y received 200,000 orders, but some of them were ‘refundable deposit’ orders.

“In the first week after the start of delivery, the new Model Y delivered more than 6,000 vehicles, while this number was usually 10,000 or even more in the past. The new Model Y is obviously still in the production ramp-up period.

“Currently, Tesla’s official website shows that the delivery cycle of the new Model Y rear-wheel drive standard version is 2-4 weeks, and the delivery cycle of the long-range version is 6-10 weeks. Compared with the previous regular delivery cycle of 1-4 weeks, the order scale of the new Model Y has not significantly exceeded Tesla’s production capacity and estimates.

“Production capacity and delivery have not yet caught up, but the waiting period for new car orders is not long. The market response to Tesla’s revamped Model Y is not optimistic.”

We’ll see. While it’s been clear for months (or even a year and a half, from my perspective) that Tesla is facing some consumer demand challenges, this is the first reporting indicating that the upgraded Model Y does not have as much interest as hoped and might not be enough to save the day. We will see.

36kr has a biting assessment, though. It notes that while Tesla’s sales struggles in the US and Europe may be political, in China, Tesla’s just losing on the market. “[T]he reason for the decline in sales in the Chinese market is very simple and direct: although there is a transition period between the new and old models of Model Y, the most direct reason for the decline in sales is that Tesla’s product competitiveness is declining.” Hmm. Well, it’s something we’ve been warning about for a long time. Maybe if Tesla had a CEO who worked in Tesla offices and factories 5 days a week the company would have a bigger, more diverse lineup of vehicles with hotter new tech by now. (By the way, how many days a month is Musk actually in Tesla offices and factories now?) Or maybe if Musk had been focused on new vehicle development more in the past 5 years instead of obsessing over “Full Self Driving” the company would be in a better position now.

China is Tesla’s biggest market. If buyers there are starting to get bored of Teslas in comparison to all the hot new EVs and EV producers on the market, well, yikes.