Tesla’s China edge fades as Musk battles political and market headwinds

Tesla

Elon Musk's once unassailable rise in China is finally starting to turn around, with Tesla's market share shrinking, Chinese rivals snapping up market share with autonomous driving and more, and geopolitical tensions blurring Musk's value to Beijing. After all those years of indulgent support by the Beijing regime, Tesla's standing in its second-largest market has become decidedly more precarious, the Wall Street Journal reported.

From EV star to fading contender

In the years since Tesla's 2019 opening of its Shanghai factory, its cars were seen as trendy, upscale, and aspirational. Officials rolled out incentives and bent regulations to make Tesla's expansion in China a model of successful foreign investment. But in a space where electric vehicle technology occurs at light speed, Tesla has started to look old-fashioned.

Chinese buyers are increasingly opting for local players like BYD and Xiaomi with their sophisticated features—refrigerators, multi-screen entertainment systems, voice control using AI—missing from Tesla models. Tesla's spartan interiors and less trimmable interiors no longer set the pace. Its competitors are cutting down on charging time and making inroads on autonomous technology.

Tesla's Chinese staff have been highlighting the lack of region-tailored models and slow product update cycles for years. But constant warnings to American leadership were likely to go unheeded. The result has been falling Tesla sales in China even as the broader EV market takes off.

Political fallout undermines Musk's position

Musk's strained interactions with former friend Donald Trump have served to decrease his value to China geopolitically even further. Once viewed as a valuable bridge to Washington, Musk is no longer being courted by Beijing. While Chinese officials still keep Tesla safe from trade retaliation, they've been less willing to view the automaker as a strategic partner.

Beijing has also delayed the introduction of Full Self-Driving (FSD) software, one of Musk's biggest ambitions. Regulatory issues in China—like bans on the export of foreign data and local training requirements—have been delaying implementation. Tesla's attempt to bypass regulators with piecemeal software updates annoyed regulators, leading to regulatory crackdowns on driver-assistance features.

Local competitors such as XPeng and BYD have filled the vacuum, adding advanced semi-autonomous technology and even robotaxi operations. Tesla itself, just starting to offer robotaxis in the U.S., has no such role in China.

A shrinking piece of a growing pie

Tesla's electric vehicle market share in China has dropped from 11% in early 2021 to just 4% in May 2025 as Chinese EV sales exploded. BYD is on the verge of controlling 30% of the market. Xiaomi, newly entered into the market, already controls 3% with its SU7 model.

Sales representatives point to intense pressure to sell daily quotas, and buyers complain about Teslas as being less exciting and more "iPhones" in nature—well designed but boring. Even a

state-owned employer banned parking Teslas on its premises, citing data privacy concerns. Some consumers, like Qian Yang, have switched to domestic models that have more integration and smarter features.

Self-driving setbacks

Tesla's attempt to export its U.S.-trained FSD software to China has been running into wall after wall. Chinese regulators insist on domestic data training, and U.S. export controls on AI chips made it difficult for Tesla to set up an FSD training system within China. Even when Tesla agreed to censor sensitive video content, officials protested.

Tesla subsequently offered a free trial of select FSD features, which led to the regulators cautioning that it shouldn't test Chinese drivers. Local firms, meanwhile, are capitalizing on Tesla's regulatory limbo by proceeding with their own autonomous products.

Lessons from history—and a familiar pattern

Tesla's challenges are echoed in the challenges that other US tech giants in China are facing. Motorola and Apple once controlled the Chinese consumer market, only to lose ground to local competitors. Like them, Tesla is finding that success in China can be fleeting.

The Chinese administration initially embraced Tesla to accelerate local industry, as a "catfish" meant to stir stagnant waters. That succeeded. Tesla did indeed bring skill and scale, but Chinese business learned fast, replicated its innovations, and in numerous cases, outinnovated them.

New battlegrounds: batteries and humanoid robots

Musk's vision for Tesla extends beyond cars, into battery packs and humanoid robots. China is already looking ahead to this, as well. Tesla's Shanghai Megapack factory has begun exporting to Australia, but homegrown battery giant CATL is getting into the same game.

In robotics, Tesla’s Optimus humanoid project depends on Chinese suppliers for critical parts. These suppliers are now helping domestic robot makers like Unitree and Agibot, potentially giving rise to the next generation of Chinese tech challengers.

Musk himself acknowledges the risk. “I’m a little concerned that on the leaderboard, ranks two through 10 will be Chinese companies,” he recently told investors.

End of the honeymoon

The fall from Tesla's formerly China-preferred position is a turning point in the company's fortunes globally. Musk bet on China's economies of scale and low cost first, and he got away with it. But he never factored in the ability of Chinese competitors to catch up faster—and the willingness of Beijing to switch allegiances when Tesla had completed its assignment.

The EV leader finds itself in a familiar position for many foreign companies in China these days: fighting to stay competitive in a market that once embraced it, but has long since moved on.