Tesla will make a lower-cost version of its best-selling Model Y in Shanghai, three people with knowledge of the matter said, aiming to regain ground lost during a price war in its second-largest market.

Sources say the new EV will be a smaller Model Y, with mass production starting in 2026. Local rivals like BYD are eroding Tesla’s market share, prompting a new affordable model. The new electric car will reportedly be produced in China,

The stripped-down SUV is aimed at recovering market share from Chinese makers offering less-expensive models.