Tesla struggles to maintain momentum in China

[WORLD] Tesla’s Shanghai Gigafactory has reported a sustained drop in vehicle deliveries for the eighth consecutive month, reflecting growing competitive pressure in the Chinese electric vehicle (EV) market. In May, the factory delivered 61,662 Model 3 and Model Y units, marking a 15% year-on-year decline, even though it represented a modest 5.5% rise from April.

According to the China Passenger Car Association (CPCA), Tesla’s total output for the first five months of 2025 stands at 292,875 units—down 17.6% compared to the same period last year. This decline has triggered a round of new incentives from Tesla aimed at stimulating demand, including deeper discounts and enhanced trade-in offers.

China’s homegrown EV brands, such as BYD and Nio, are gaining market share rapidly through aggressive pricing, frequent product updates, and localized features. Tesla now faces the dual challenge of maintaining global delivery momentum while defending its market position in the world’s largest EV market.

Implications

For Tesla and Global Investors:

The ongoing delivery slump in China, Tesla’s second-largest market after the US, signals broader headwinds for the company’s international growth. The Shanghai Gigafactory plays a central role in Tesla’s export strategy, and prolonged underperformance may force the automaker to revise its global targets or shift resources elsewhere.

For Chinese EV Makers:

The weakening of Tesla’s foothold offers an opening for domestic brands to cement their dominance. Companies like BYD and XPeng are moving quickly to scale production, expand distribution, and enhance tech offerings. The competitive advantage now lies in speed, affordability, and cultural localization—areas where Tesla may lag.

For Consumers and Policymakers:

Buyers stand to benefit in the near term as EV makers compete on price and innovation. However, price wars could strain margins and slow long-term R&D investment. For regulators, the evolving market raises new questions around trade policy, sustainability goals, and how to balance support for domestic champions with fair competition.

What we think

Tesla’s continued delivery decline in China reflects more than just a cyclical dip—it’s a sign of deeper structural shifts in the EV landscape. With Chinese automakers adapting faster to local tastes and leveraging vast government support, Tesla’s “global premium brand” strategy is losing its edge in Asia. “Being first isn’t the same as staying ahead,” and Tesla now finds itself in reactive mode, sweetening deals to stay relevant. While temporary incentives may cushion the drop, the long game will require either a fresh wave of innovation or a significant localization push. Investors should watch whether Tesla can reclaim volume leadership—or whether it pivots to premium niches instead. For now, the Shanghai factory’s slide underscores just how fierce the EV battleground in China has become.