Despite record China sales in 2024, Tesla is facing tough competition this year.

• In the January to November period last year, Tesla's market share in new-energy vehicles decreased from 7.8% to 6%.
• "Bill Russo, the Shanghai-based founder and CEO of Automobility, stated that he would have difficulty declaring Tesla a winner in China as they are facing challenges in keeping up and have a limited and aging product portfolio."
• According to Sam Fiorani, vice president of AutoForecast Solutions, the trade barriers would force Chinese automakers to focus on domestic and "smaller, friendlier" foreign markets, putting pressure on Tesla's China and global sales.

Last year, Tesla's sales in China reached a new record high. However, maintaining this level of performance in 2025 may be challenging due to increasing competition from domestic players, according to analysts.

Tesla China reported a 12.8% increase in sales from the previous month to 83,000 units in December 2024, resulting in a record high of more than 657,000 cars sold annually.

Tesla's market share in the new-energy-vehicle market has decreased from 7.8% in 2023 to 6% in the January to November period last year, according to Bill Russo, founder and CEO of Automobility, who believes Tesla is struggling to keep up with domestic rivals and has a limited and aging product portfolio.

According to Tu Le, founder and managing director of Sino Auto Insights, Tesla's sales have been supported by brand resiliency and price cuts. However, he expressed uncertainty about Tesla's ability to maintain its momentum in 2025 due to the absence of new products and increased competition from Chinese companies.

Aggressive price war

In late December, Tesla reduced the price of its popular Model Y in China by 10,000 yuan ($1,364.5), and also offered a zero-interest five-year loan plan to car buyers until the end of January.

Tesla's best-selling Model Y now starts at 239,900 yuan after a 14,000 yuan price cut, while the Model 3 sedan starts at 231,900 yuan, according to its website.

The Seagull model by BYD, which has a 34% market share, costs 136,800 yuan, while the more affordable Yuan Plus model starts at 96,800 yuan, marking a significant premium over cheaper models offered by Chinese domestic carmakers.

Li Auto and Nio have both introduced cash subsidies and zero-interest financing schemes to entice buyers amidst the ongoing price war.

Chinese authorities also introduced purchasing incentives in addition to their program that subsidizes consumers to trade in old cars or appliances and buy new ones at a discount.

Tesla China announced that the government-subsidized trade-in program could potentially decrease the prices of Model 3 and Model Y by up to 50,000 yuan.

Russo noted that Tesla must discount aggressively to remain competitive in the market's ongoing price war.

Tesla is unlikely to lose its market share completely in China, as Joe McCabe, CEO and president of AutoForecast Solutions, compares Tesla to "the Apple of cars" and highlights its "phenomenal" technology as an "early adopter" in the EV space.

"McCabe stated that Tesla is not at risk of failing, as Elon Musk can simply lower the price by 5% to help with minor fluctuations."

Head-to-head race

Chinese electric car manufacturers have introduced numerous new models, many of which come equipped with advanced in-car technology, including projectors, built-in refrigerators, and driver-assist systems.

While Tesla has not yet incorporated any of these features into its product line, its competitors have shifted their focus to plug-in hybrid cars and extended-range EVs.

Tesla has no plans for anything other than fully electric vehicles, according to Sam Fiorani, vice president of AutoForecast Solutions. This may reassure buyers who are still concerned about the transition to fully electric cars.

While regulatory approval in China is still required for the automaker to launch its full self-driving supervised system, several local competitors have already integrated advanced driver-assistance systems into their offerings, including BYD.

In January, Musk had warned that Chinese automakers could "dominate the global car market" unless regulators imposed trade barriers, as BYD surpassed Tesla as the world's top-selling EV company in the last quarter of 2023.

The US imposed a 100% duty on Chinese EVs in September to safeguard its domestic industries from the pricing threat posed by heavily-subsidized Chinese competitors. Meanwhile, the EU imposed tariffs of up to 45.3% on Chinese EV cars imported late last year, while Tesla received a lower tariff rate of 7.8%.

Fiorani stated that the trade barriers would force Chinese automakers to focus on domestic and "smaller, friendlier" foreign markets, potentially putting pressure on Tesla's sales in China and beyond.

The number of China-made EV cars sold by Tesla, including exports to foreign markets, decreased by 0.4% from the previous year to 93,766 units in December, as calculated from China Passenger Car Association data.

Despite being subject to a 17% tariff duty on car exports to the European Union, BYD remained the top seller in December with 509,440 cars sold, representing a nearly 50% increase from the previous year.

—CNBC's Evelyn Cheng and Sonia Heng contributed to this report.