Tesla’s sales of China-made electric vehicles declined in July, reversing a short-lived gain in June as intensifying competition and price pressure from domestic rivals continue to weigh on the U.S. automaker’s performance in the world’s largest EV market.

According to data released Monday by the China Passenger Car Association (CPCA), Tesla delivered 67,886 units of its Model 3 and Model Y vehicles from its Shanghai Gigafactory last month, including exports to Europe and other markets. This marked an 8.4% year-on-year decline, and a 5.2% drop from June, when the company had briefly broken an eight-month losing streak with a marginal 0.8% annual increase.

In contrast, Chinese EV giant BYD reported largely flat global sales, delivering 341,300 vehicles across its Ocean and Dynasty series of electric and plug-in hybrid models in July. Although BYD’s growth plateaued, the company continues to overshadow Tesla in sheer volume within the Chinese passenger EV space.

The setback for Tesla comes at a time when the company is facing multiple headwinds: waning demand in a saturated and price-sensitive Chinese market, growing popularity of cheaper alternatives from local players, and an image crisis sparked by CEO Elon Musk’s increasingly polarizing public commentary. These challenges contributed to Tesla’s steepest global quarterly sales drop in over a decade during Q2 2025.

In a bid to regain momentum, Tesla is doubling down on innovation and local market adaptation. The company is preparing to introduce a six-seat, extended-wheelbase version of its Model Y in China, and a longer-range, rear-wheel drive version of the Model 3 is also on the horizon. However, plans to launch a more affordable variant of the Model Y have reportedly been delayed by several months, according to sources cited by Reuters.

The broader Chinese auto industry remains embroiled in a cutthroat price war, with automakers slashing prices and launching aggressive promotions to capture market share. The ongoing discount frenzy has impacted not just global brands like Tesla, but also local manufacturers and the supply chain ecosystem, prompting Chinese authorities to call for a pricing ceasefire earlier this year.

As Tesla bets on future growth in autonomous vehicles and humanoid robots, its core EV business in China—the crown jewel of global EV markets—faces mounting pressure. The next few quarters will be critical as the company seeks to stabilize regional sales while holding onto its premium brand status amid a wave of affordable, feature-packed Chinese alternatives.