Tesla's global pivot reshapes its presence in China's premium EV market

by GE Cheng

Tesla's Model S and Model X are nearing the end of sales in China, as the company moves to end production of its two once-flagship vehicles.

Sales staff at Tesla stores in China told Jiemian News that inventories of the Model S and Model X are nearly exhausted, customized orders have been halted, and remaining units are largely limited to showroom vehicles or a small number of ready cars. Prices are slightly below official list levels, but the company is avoiding sharp discounting, the staff said.

Globally, Tesla has said it will stop producing the two models by the end of the second quarter of 2026. Chief executive Elon Musk said on a recent earnings call that production lines at the company’s Fremont, California, plant will be repurposed to manufacture its Optimus humanoid robot.

The move comes as pressure builds on Tesla's core automotive business. In 2025, the company reported revenue of US$94.8 billion, down 3% from a year earlier, marking its first annual decline. Net profit fell 46% to US$3.8 billion, while global deliveries dropped 8.6% to 1.64 million vehicles. Tesla also lost its position as the world's largest seller of battery-electric vehicles to BYD, which delivered 2.26 million EVs over the year.

In China, the phase-out of Model S and Model X goes beyond sales volumes. Once key products that supported Tesla's upmarket image, the two models now account for only a small share of demand as competition in the high-end electric segment has intensified.

After inventories are cleared, Tesla's China lineup will shrink from four models to two, leaving the company absent from the pure-electric segment priced above 500,000 yuan. Domestic brands have expanded rapidly into that range, rolling out large sedans and SUVs backed by advances in batteries, software and intelligent-driving systems.

Analysts say the immediate commercial impact on Tesla is limited, as Model S and Model X have accounted for a small share of deliveries in recent years. The move reflects a clean-up of underused capacity rather than a retreat from a major profit driver.

Tesla has increased spending on AI and autonomy, with operating expenses rising 23% in 2025 to US$12.7 billion. The company plans to sharply increase capital expenditure in 2026 to fund new factories and AI infrastructure.

In China, the shift highlights challenges for Tesla. While the company remains a strong mass-market player with the Model 3 and Model Y, its ability to maintain a premium foothold has weakened as local competitors move faster in tailoring products to local consumer preferences and regulatory conditions.

China has become an early test case for the risks embedded in Tesla's strategy. Analysts say Tesla's push into humanoid robots carries significant execution risks. While Musk has said the Optimus business could eventually generate trillions of dollars in revenue, large-scale commercialization remains technically uncertain, and meaningful income is widely seen as years away.

At the same time, Tesla faces mounting pressure in its core car business. Vehicle sales declined across its three largest markets — the United States, China and Europe — in 2025, raising questions about its ability to sustain cash flow while new businesses such as robotics and artificial intelligence are still in an early stage.

In China, the phase-out of Model S and Model X captures the trade-off Tesla faces as it scales back its premium EV presence while betting on longer-dated businesses.