Tesla reports record sales in China in 2024. But this year will be difficult

Electric vehicle maker Tesla's sales in China reached record highs last year. Analysts say that maintaining these results in 2025 may prove difficult due to the intensifying competition with domestic players.

The US electric vehicle maker saw annual sales in China rise 8.8% to a record high of over 657,000 cars in 2024. Sales in December alone rose 12.8% from the previous month to 83,000 units, according to Tesla China.

According to Bill Russo, founder and CEO of Automobility, who believes that Tesla is “struggling to keep pace (with domestic rivals) and has a limited and aging product portfolio.”

Brand resilience and price cuts have supported Tesla's sales so far, said Tu Le, founder and managing director of Sino Auto Insights, but he was unsure whether Tesla would be able to maintain momentum in 2025 given the lack of new products and increased local competition especially Chinese companies.

Tesla has lowered the price of its best-selling Model Y in China at the end of December by 10,000 yuan ($1,364.50). and extended a five-year zero-interest loan plan for car buyers until the end of January.

Prices for the best-selling Model Y now start at 239,900 yuan after a discount, while prices for the Model 3 sedan start at 231,900 yuan – Tesla lowered prices by 14,000 yuan in April – according to his website.

Still, it meant a significant advantage over a range of cheaper models offered by Chinese domestic carmakers. BYD, which dominates the market with about 34% market share, is pricing one of its best-selling models Seagull for 136,800 yuanand the cheaper Yuan Plus model, starting from 96,800 yuan.

As the price war continues in the new year, Li Auto introduced 15,000 yuan cash subsidies for purchases along with a three-year interest-free financing program, according to the post appeared last Thursday on his social media Weibo account. Nio too extended a similar three-year zero interest period loan plan for electric vehicle buyers.

The purchasing incentives coincide with a push by Chinese authorities to expand its consumer goods trade program, under which consumers subsidize the trade in old cars or appliances and the purchase of new ones at a discount.

The government-subsidized trade-in program could further reduce the prices of the Model 3 and Model Y by up to 50,000 yuan, Tesla China says.

“Tesla must aggressively lower prices to keep pace with the ongoing price war in the market,” Russo noted.

Despite declining market share, Tesla is unlikely to completely lose its position in China, according to Joe McCabe, CEO and president of AutoForecast Solutions, stating that Tesla is the “apple of cars” – an “early adopter” in the electric vehicle space with “phenomenal” technology .

“I don't think Tesla is at risk of not surviving,” McCabe added. “All he (Elon Musk) needs to do is drop the price by 5% because he can, and that will help with the small jumps.”

In addition to price cuts, Chinese electric car makers have launched a slew of new models, many of which have fancy features in the carsuch as projectors, built-in refrigerators and driver assistance systems.

Meanwhile, Tesla has been slow to implement any of these features, with its product portfolio focused solely on fully electric vehicles, while its domestic rivals focused on plug-in hybrid cars and longer-range electric vehicles.

These more traditional models appeal to buyers who are “still concerned about the transition to fully electric cars,” said Sam Fiorani, vice president of AutoForecast Solutions. “Tesla has no plans for anything other than fully electric vehicles.”

The automaker still plans to bring a fully autonomous, supervised system to market depends on regulatory approval in China, while several local competitors did so has made advanced driver assistance systems a core part of their offeringincluding BYD.

Musk warned in January that Chinese automakers could do just that “demolish most of the other car companies in the world” unless regulators intervene on trade barriers, as Warren Buffett-backed BYD overtook Tesla as the world's best-selling electric vehicle company in the last quarter of 2023.

USA imposed a 100% tariff on Chinese electric vehicles last September to protect its domestic industry from price pressure from heavily subsidized Chinese competitors. The European Union also moved to impose tariffs of up to 45.3% on Chinese electric cars imported late last year, while Tesla enjoyed a lower tariff rate of 7.8%.

Trade barriers would force Chinese automakers to find buyers at home and in “smaller, friendlier” overseas markets, increasing pressure on Tesla's sales in China and elsewhere, Fiorani added.

Tesla's sales of China-made EVs, including exports to overseas markets, declined slightly by 0.4% compared to the previous year to 93,766 units in December, according to CNBC calculations based on data from the China Passenger Car Association.

BYD, that is subject to a 17% customs duty in terms of car exports to the European Union, it continues to lead the ranking with 509,440 cars sold in December, an increase of almost 50% year-on-year.

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