Once the undisputed leader of the global electric vehicle (EV) market, Tesla (TSLA +0.94%) has seen its market share shrink sharply amid intensifying competition, especially from Chinese automakers. In the first half of 2025, BYD dominated the global EV market with a 19.9% share. On the other hand, Tesla's share dropped 4.2 percentage points year over year to 7.5%.
However, Tesla is now facing significant competition from an unexpected rival. Meet Chinese smartphone and smart home giant Xiaomi (XIACF 0.11%), which has branched out to electric vehicles. With an aggressive pricing strategy, higher claimed range, and deeply integrated human-vehicle-home ecosystem, Xiaomi is giving Tesla a tough fight.
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Xiaomi in the Chinese market
Xiaomi launched its SU7 sedan in China in October 2024. However, in December 2024, SU7 sold 25,815 units in China, outpacing Tesla's Model 3 sales of 21,046 units. Riding on that momentum, Xiaomi launched the YU7 in mid-2025, and it directly competes with Tesla's Model Y sport utility vehicle.
The YU7 launch has been exceptionally successful, with nearly 240,000 firm orders secured in just 18 hours. Xiaomi has priced the YU7's base model at 253,500 yuan ($35,364), almost 10,000 yuan lower than Model Y's starting price in China.
The company has also claimed an 835 km range (the total distance EV can travel on a full charge before the battery runs out) in the China Light-Duty Vehicle Test Cycle (CLTC) for the YU7 standard vehicle, higher than the 719km claimed by Tesla in the CLTC cycle for its redesigned Model Y vehicle. A higher claimed range is an effective marketing tool for EVs, since range anxiety is one of the most significant psychological barriers to EV adoption.
OTC: XIACF
Key Data Points
Xiaomi is now well-positioned to capitalize on the 731 million monthly active users in its human-vehicle-home ecosystem. Since this brand name is already well-established in China's wearables, smartphone, and smart home markets, many customers may choose to extend their trust to its vehicles for the same ecosystem benefits.
China already has an extensive EV charging infrastructure, with 16.7 million charging points at the end of July 2025. Here, consumers are giving higher priority to range convenience and pricing over Tesla's global charging infrastructure and autonomous driving innovations.
Xiaomi's business momentum
Xiaomi delivered 81,302 new EVs in the second quarter of fiscal 2025 (ended June 30) and over 30,000 vehicles in July. The company had completed cumulative deliveries of over 300,000 units by the end of July 2025.
The company's human-vehicle-home ecosystem is helping create a sticky customer base. When multiple devices such as smartphones, smart home appliances, and wearables work together seamlessly within an ecosystem, customers are less likely to switch to the competition.
Xiaomi also delivered strong financials in the recent quarter. In the second quarter, revenue rose 30.5% year over year to 116 billion yuan ($16.11 billion ), while net profit surged by 75% to 10.8 billion yuan ($1.5 billion).
The company is using these funds to accelerate research and development (R&D) investments. In the second quarter, R&D spending was up 41% year over year to 7.8 billion yuan. The company is also investing heavily in AI initiatives and has developed a 3-nanometer chip, XRING O1, and an open-source large language model, Xiaomi MiMo-VL/7B. All this implies that the company has significant financial flexibility and technical capability to further improve its EV offerings.
Tesla's operational and financial performance
Tesla continues to post substantial global delivery numbers. In the third quarter, the company delivered 497,099 vehicles, up 7% on a year-over-year basis and above the consensus estimate of 443,919 vehicles. However, the company produced 447,450 vehicles, down 5%.
Many analysts view this gap between deliveries and production as a sign of pulled-forward demand, with sales shifting from the fourth quarter to the third quarter due to the anticipation of the $7,500 federal tax credit expiring on Sept. 30. Hence, there remains a risk that sales will normalize or even drop in the subsequent quarters.
NASDAQ: TSLA
Key Data Points
Tesla saw global revenue jump 12% year over year to $28.09 billion in the third quarter. However, operating margin dropped by 501 basis points year over year to 5.8%, reflecting the impact of the company's strategy of repeatedly reducing vehicle prices to boost sales volumes.
To offset the effect of price cuts on profitability, the company has trimmed some features and offers lower battery size, less powerful motors, and fewer premium features. While these changes can help reduce costs, they also negatively affect the brand's premium image.
Tesla's situation seems even more challenging in China. The company's share of the Chinese EV market has dropped from 16% in 2020 to 4.4% in August due to intense competition from local EV players.
Energy storage and robotaxi
Tesla's energy storage business has been showing strong traction. In the third quarter, the company demonstrated record deployments and impressive margins for its energy storage business.
The company is also aggressively focusing on artificial intelligence (AI)-powered autonomy business. Tesla is already operating its robotaxis in Austin, Texas, and in most Bay Area cities. Tesla also expects to start operating robotaxis in eight to 10 metro areas across Nevada, Florida, and Arizona by the end of 2025.
Since launch, Tesla has expanded its coverage area in Austin by three times and has covered over 0.25 million miles without a person in the driver's seat. With increasing confidence in the vehicle's safety features, the company now expects the regulatory requirement for safety drivers to be removed in large parts of Austin by the end of 2025. The company has also covered nearly 1 million miles in the Bay Area, although regulations require a safety driver.
Xiaomi can be the winner in the short run
Despite Tesla's focus on AI and autonomy, Xiaomi may continue to be the winner in China. In this largest EV market, customers are currently prioritizing pricing, perceived performance, and ecosystem benefits over long-term benefits from autonomy. Tesla is also facing negative cost pressures from tariffs, competitive pricing, and AI-related capex.
Hence, unless energy storage and autonomy translate into high-growth and high-margin businesses, competition from Xiaomi and other Chinese EV players could continue to pressure Tesla's market share and earnings momentum over the coming quarters.
