Tesla (TSLA.US) is planning to introduce a more affordable Model Y in China in an effort to regain its market share.

According to sources, Tesla (TSLA.US) is developing a low-cost version of its popular Model Y in Shanghai to regain its market share in China.

The new model, which is expected to be more compact than the updated Model Y launched at the end of last year, will have production costs at least 20% lower, according to sources. The Model Y is a midsize crossover SUV with a starting price of RMB263,500.

Two of the three sources said the low-cost model is being developed, with the project code-named "E41", and could start mass production at the Shanghai factory in 2026. One of the sources said the Shanghai-made models would be mainly sold in China to keep its market share, adding that the model would also be produced in Europe and North America, but did not specify when.

Earlier this year, Tesla CEO Elon Musk announced the company planned to launch more affordable models by the first half of 2025. However, he did not provide specific details on the cost reduction, pricing, size or specifications.

Recently, the US electric vehicle maker has not launched any new products, except for the self-driving "Cybercab" robotaxi, which is scheduled to be released in 2026. Instead, the company is seeking to compete with rivals, especially in China, by quickly developing different versions of its existing models.

Tesla's sales and market share in China have been declining, with its pure electric vehicle market share falling from 11.7% a year ago to 10.4% in 2024.