Tesla Stumbles as Xiaomi Charges Ahead in China’s Cutthroat EV Battle

Xiaomi's electric vehicle division just delivered a gut punch to Tesla's dominance in the world's largest auto market.

The Chinese tech giant's aggressive pricing and rapid production scaling are eating into Tesla's market share—forcing Elon Musk's company into defensive maneuvers while Beijing-backed competitors accelerate.

Local manufacturing advantages and tighter supply chain control give Xiaomi an edge Tesla can't match without serious concessions. They're leveraging smartphone production expertise to achieve terrifyingly efficient EV output.

Tesla's response? Price cuts across their lineup and frantic attempts to localize more components. But it might be too little, too late in this subsidy-fueled race to the bottom.

Meanwhile, Wall Street analysts keep hyping 'production targets' while ignoring the brutal reality: everyone's margins are getting slaughtered in this government-directed capitalism experiment.

Xiaomi pushes ahead despite setbacks

Xiaomi put $10 billion into the EV business, and they want to take over. The company has made it clear it’s not stopping until it’s one of the top five car brands in the world.

Right now, it’s trying to compete directly with Tesla and BYD, and so far, it’s not backing down. Co-founder Lei Jun said in June that the EV division should become profitable in the second half of 2025.

And here’s the wild part: Xiaomi’s market value went up by $120 billion over the past year because of this EV push. That’s with the brand still shaking off the March crash involving an SU7 sedan running on Autopilot.

That accident triggered new regulations from Chinese authorities, especially concerning driver assistance systems. But Xiaomi has stayed in motion, and sales don’t seem to be slowing.

The YU7 was officially launched in late June, and it’s already proving to be a breakout model. This launch was important, not just for showing off the car, but for helping Xiaomi stand out in a market flooded with discounting.

EV makers in China are still caught up in a brutal price war, and Beijing stepped in back in June to try to end the chaos. So far, Xiaomi has avoided the price cuts because its demand is strong enough not to need them.

Even with those results, Xiaomi stock is now priced higher than both BYD and Samsung Electronics. That’s despite the company still struggling with its Core smartphone business and low consumer spending across China.

In June, Xiaomi had to slash phone prices, joining Apple and Huawei for big promotions during the country’s annual shopping festival. The tactic helped move products, but it hit profit margins hard.

Tesla slips as Xiaomi grows in Chinese EV race

While Xiaomi’s EV arm is climbing, Tesla’s Chinese numbers are moving the other way. China used to be one of Tesla’s strongest markets. Now? It’s a fight. In the second quarter of 2025, Tesla sold 128,803 vehicles in China.

That’s a 4.3% drop from Q1, and down 11.7% from a year ago. Even after offering discounts and financing deals, sales dipped again in July, wiping out gains seen briefly in June.

Local Chinese brands are tearing into Tesla’s share. BYD is winning in volume, while companies like Li Auto and NIO are pulling in buyers fast.

To try and claw back relevance, Tesla just launched a new model, the Model Y L, a six-seater SUV designed for the Chinese market. It’s a longer version of the standard Model Y. But the real test is whether Chinese buyers even care anymore. The market’s crowded. Loyalty is fading. And Xiaomi’s timing couldn’t be better.

Meanwhile, Xiaomi is expanding beyond cars and phones. In the same quarter, the company revealed a new 3-nanometer chip—the Xring O1.

This chip is built to power next-gen devices like the Tablet 7 Ultra. On this front, Lei said Xiaomi will put $7 billion into semiconductors this decade. It’s yet another part of their diversification plan, which now includes EVs, AI, smartphones, and chips.

That chip MOVE comes as smartphone profits shrink, especially with Chinese shoppers pulling back. Xiaomi is being forced to look ahead, even if its bread-and-butter business isn’t where it used to be. But while phone revenue gets squeezed, vehicle growth and chip ambitions are padding the gaps.

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