Regular readers of this website will understand all too well how far ahead China is in the electric car race. We cover this a lot. I realize we’ve been harping on this stuff—and even more so since our Editor-in-Chief Patrick George returned from the Shanghai auto show this month with the frantic energy of Charlie Kelly trying to track down Pepe Silvia. That’s just how stunned he was by the cars and technology he witnessed.
And even Tesla, long the technology leader in American autos, seems to be getting outpaced. Take it from an unlikely source: one of Tesla’s biggest cheerleaders on Wall Street. In a pair of recent notes to investors, Morgan Stanley analysts led by Adam Jonas said that Tesla probably can’t catch up with EVs coming out of China.
“China may have already won the EV battle,” the analysts said in a Tuesday report.
The comments were precipitated by one particularly dazzling Chinese model that was unveiled this week, the Xiaomi YU7. The electronics maker got into the EV game in 2021 and came out with its first car, the SU7 sedan, last year. That vehicle impressed auto executives like Ford CEO Jim Farley and became a smashing success in China, selling a whopping 320,000 units in its first 11 months on the market.
The YU7 is Xiaomi’s second-ever vehicle, a stylish, high-tech crossover aimed squarely at Tesla’s bread-and-butter Model Y. And already, experts on Wall Street are saying this fresh car company far outclasses the U.S.’s longtime EV leader—the very originator of the global electric car industry—on price, specs and design.
Photo by: Xiaomi
This, the analysts say, explains why Tesla is focusing its efforts on developing self-driving taxis instead of regular cars.
“We recommend investors have a look at the pictures and specs of the Xiaomi YU7, which looks like a Ferrari or Aston Martin SUV at the price of a Toyota Camry. Then ask yourself if Tesla would be better off introducing more steering-wheel-having EVs,” they wrote on Wednesday.
Musk has appeared less and less interested in the business of making and selling cars in recent years—arguing instead that Tesla’s future is all about self-driving technology and the Optimus humanoid robot.
On Tesla’s most recent earnings call, he said something rather remarkable to hear from an auto executive: “The reality is that, in the future, most people are not going to buy cars.”
Photo by: Xiaomi
Perhaps Morgan Stanley analysts are right when they say that Xiaomi and everything it represents can explain why Tesla is “moving away from ‘car’ and going all-in on autonomy.”
Massive government subsidies, proximity to the battery supply chain and a focus on STEM education have helped turn China into a global EV powerhouse in recent years. Now it’s home to an extraordinarily fast-paced and innovative electric car market that has increasingly displaced outsiders like Tesla, Volkswagen and General Motors.
Chinese players like BYD, Nio and Geely are expanding rapidly abroad too. BYD just launched its dirt-cheap Seagull hatchback in Europe for the equivalent of $22,000.
According to the analysts, China’s global expansion will deal a blow to Tesla’s car business. (By some estimates, the country will be responsible for one in three cars sold in 2030.) And that’s a problem for a company that, no matter how much it promises it will become a multi-trillion-dollar AI company, still makes nearly all of its money selling cars.
“We find market expectations around Tesla’s near-term automotive business remain too high and do not fully reflect the quantum of incremental capacity and competition coming out of China, ultimately having an impact in international markets,” they said.
Photo by: Patrick George
To be sure, it’s not just Tesla that Morgan Stanley’s team thinks will be left eating Xiaomi’s dust here. Ford, whose CEO once said that it’s his job to “beat the SU7 in a straight-up street fight,” probably can’t hang either, per the analysts.
“In our view, it may take many years before Ford could have a comparable product to the SU7 or YU7 on dealer lots, by which time one can only imagine the improvements made to Xiaomi’s subsequent products and innovations,” they said.
China’s EV dominance may feel like a distant challenge today. Steep tariffs and bans on Chinese vehicle technology are keeping Xiaomi and its ilk at bay in the U.S. But the bank thinks it’s only a “matter of time” before these brands arrive stateside.
“We are not aware of any auto CEO who believes tariffs will be successful in keeping Chinese EV technology fully out of the U.S. market,” they said. “In our view, you can’t keep the best product away from the best consumer for very long.”
Contact the author: Tim.Levin@InsideEVs.com
