In a surprising turn of events for Tesla, Xiaomi's brand-new YU7 electric SUV has launched to overwhelming demand, sparking fears that the American car giant may need to slash its prices to stay competitive.

In a mere 18 hours after its release, Xiaomi reported a staggering 240,000 orders for the YU7, showcasing consumer excitement. Buyers either made significant deposits for immediate deliveries or smaller ones for future models.

Xiaomi, initially known for smartphones and appliances, made waves in the EV sector with its first model, the SU7 sedan, which has consistently outperformed Tesla's Model 3 in monthly sales since December.

Priced from 253,500 yuan ($35,360), the YU7 strategically undercuts Tesla's Model Y by almost 4%, potentially further eroding Tesla's market share, analysts warn.

At a bustling Xiaomi showroom in Beijing, crowds flock eagerly to check out the YU7. Otto Shi, a 26-year-old finance professional and Tesla Model Y owner, is considering switching to the YU7 for his father's Mercedes-Benz.

"We could take turns driving the Model Y and YU7," he said, impressed by Xiaomi's effective supply chains and the SU7's success, viewing Xiaomi as a leading Chinese brand for his future vehicle.

Xiaomi’s shares spiked 8% at the open, reaching new heights before settling at a 3.6% increase, reflecting a phenomenal 70% rise in 2023, now valuing the company around $190 billion and marking it as the top large-cap stock in the Asia-Pacific region.

What’s Next for Tesla?

As domestic competitors gain traction with innovative features, Tesla's market share in China has plummeted – from 15% in 2020, to 10% last year and just 7.6% in the first five months of 2025.

Citi analysts suggest that Tesla may need to cut prices, offer its cutting-edge Full Self-Driving (FSD) software for free, and introduce enhanced financing options to effectively compete.

Despite counting China as its largest market, Tesla has not responded to inquiries about these developments. Last year, China accounted for approximately 20% of Tesla's revenues.

Though Xiaomi's CEO Lei Jun admitted Tesla's driver assistance software has the edge, he highlighted the YU7's impressive specs, including a robust 96.3 kWh battery that provides a remarkable range of 835 km (519 miles) compared to the Tesla Model Y's 719 km range and smaller 78.4 kWh battery.

The YU7 also includes extra storage solutions in the backseats and offers driver assistance software at no additional charge, while Tesla charges an extra 64,000 yuan for similar capabilities.

In a fantastic debut, Xiaomi announced a whopping 289,000 orders for the YU7 in just the first hour of availability, vastly surpassing initial interest in the SU7.

However, some caution remains as scalpers reportedly have begun purchasing orders, prompting Xiaomi to limit customers to a maximum of two cars each to deter this practice.