The Chinese tech giant could provide tough competition for Tesla.
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Tesla was once the undisputed leader in the global electric vehicle (EV) market. (NASDAQ:TSLA) The company’s market share is rapidly shrinking, especially as competition from Chinese automakers intensifies. In the first half of 2025, BYD dominated the global EV market with a 19.9% share. On the other hand, Tesla’s market share decreased by 4.2 points from the previous year to 7.5%.
However, Tesla now faces significant competition from an unexpected rival. Introducing Xiaomi, the Chinese smartphone and smart home giant (OTC: XIACF)has also expanded into electric vehicles. Xiaomi is giving Tesla a tough fight with its aggressive pricing strategy, higher range, and deep integration of human, vehicle, and home ecosystems.
Xiaomi in the Chinese market
Xiaomi launched the SU7 sedan in China in October 2024, and in December 2024, SU7 sold 25,815 units in China, surpassing Tesla’s Model 3 sales of 21,046 units. Building on that momentum, Xiaomi will launch the YU7 in mid-2025, competing directly with Tesla’s Model Y sports utility vehicle.
The launch of YU7 was very successful, with approximately 240,000 firm orders in just 18 hours. Xiaomi has priced the base model of the YU7 at 253,500 yuan ($35,364), nearly 10,000 yuan cheaper than the Model Y’s starting price in China.
The company also claims that the YU7 standard vehicle has a China Light Car Test Cycle (CLTC) range (the total distance an EV can travel on a full charge before the battery dies) of 835km, which is higher than Tesla’s claimed 719km on the CLTC cycle for its redesigned Model Y vehicle. Extended range is an effective marketing tool for EVs, as range anxiety is one of the most significant psychological barriers to EV adoption.
Xiaomi is now well-positioned to leverage its 731 million monthly active users in the people, cars, and home ecosystem. The brand name is already well-established in China’s wearables, smartphones, and smart home markets, so many customers may choose to extend their trust to the company’s vehicles for the same ecosystem benefits.
China already has a large-scale EV charging infrastructure in place, with 16.7 million charging points as of the end of July 2025. Here, consumers are prioritizing range convenience and price over Tesla’s global charging infrastructure and self-driving innovations.
Xiaomi’s business momentum
Xiaomi delivered 81,302 new EVs in the second quarter of fiscal year 2025 (ending June 30), and delivered more than 30,000 in July. By the end of July 2025, the company had delivered a total of more than 300,000 units.
The company’s human, vehicle and home ecosystem has helped it build a stable customer base. When multiple devices such as smartphones, smart appliances, and wearables work together seamlessly in an ecosystem, customers are less likely to switch to competing products.
Xiaomi also achieved strong financial results in the recent quarter. In the second quarter, sales rose 30.5% year-on-year to 116 billion yuan ($16.11 billion), and net profit rose 75% to 10.8 billion yuan ($1.5 billion).
The company is using these funds to accelerate research and development (R&D) investment. Research and development spending in the second quarter rose 41% year-on-year to 7.8 billion yuan. The company has also invested heavily in AI efforts, developing the 3-nanometer chip XRING O1 and the open source large-scale language model Xiaomi MiMo-VL/7B. All of this means the company has significant financial flexibility and technical capacity to further improve its EV products.
Tesla’s operating and financial performance
Tesla continues to record significant vehicle deliveries worldwide. In the third quarter, the company delivered 497,099 vehicles, up 7% year-over-year and beating consensus estimates of 443,919 vehicles. However, the company’s production decreased by 5% to 447,450 units.
Many analysts see this gap between deliveries and production as a sign of front-loaded demand, with sales shifting from the fourth quarter to the third due to expectations of a $7,500 federal tax credit that expires on Sept. 30. Therefore, there remains a risk that sales will normalize or even decline in subsequent quarters.
Tesla’s global sales in the third quarter rose 12% year over year to $28.09 billion. However, operating margin decreased 501 basis points year-on-year to 5.8%, reflecting the impact of the company’s strategy of repeatedly reducing vehicle prices to increase unit sales.
To offset the impact of price cuts on profitability, the company has cut some features, reducing battery size, lower motor power, and reducing premium features. Although these changes help reduce costs, they also have a negative impact on the brand’s luxury image.
Tesla’s situation looks even tougher in China. The company’s share in China’s EV market declined from 16% in 2020 to 4.4% in August due to intense competition from local EV players.
Energy storage and robotaxis
Tesla’s energy storage business is showing strong traction. In the third quarter, the company demonstrated record development and impressive margins in its energy storage business.
The company is also actively focusing on the self-driving business that utilizes artificial intelligence (AI). Tesla already operates robotaxis in Austin, Texas, and most cities in the Bay Area. Tesla also plans to begin operating robotaxis in eight to 10 metropolitan areas across Nevada, Florida, and Arizona by the end of 2025.
Since its launch, Tesla has tripled its service area in Austin, covering more than 250,000 miles without a person in the driver’s seat. Due to increased confidence in vehicle safety features, the company now expects safety driver regulatory requirements to be lifted in most of Austin by the end of 2025. Additionally, the company has driven nearly 1 million miles in the Bay Area, and regulations require a safety driver.
Xiaomi could be a winner in the short term
Despite Tesla’s focus on AI and self-driving, Xiaomi could still be the winner in China. In this largest EV market, customers are currently prioritizing price, perceived performance, and ecosystem benefits over the long-term benefits of self-driving. Tesla also faces negative cost pressure from tariffs, competitive pricing and AI-related capital spending.
So unless energy storage and autonomy lead to high-growth, high-margin businesses, competition from Xiaomi and other Chinese EV players could continue to weigh on Tesla’s market share and revenue momentum in the coming quarters.
Manali Pradhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Tesla. The Motley Fool recommends BYD Company and Xiaomi. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
