Elon Musk just made a move that few would have anticipated, and it has everything to do with China.
Tesla’s (TSLA) grip on China, historically its fastest-growing market, is slipping swiftly. For perspective, China-made vehicle deliveries declined 8.4% in July, with Q2 retail volumes tanking roughly 12% year-over-year.
💵💰Don’t miss the move: Subscribe to TheStreet’s free daily newsletter💰💵
Perhaps even more telling is that Tesla’s EV market share is down to just 7.6%, from its 15% peak during the height of the Covid pandemic in 2020.
Now, in a complete reversal, Musk is joining forces with a powerful domestic AI player he once openly criticized.
Image source: Zawrzel/NurPhoto via Getty Images
Tesla’s China sales are losing steam
Tesla’s China sales are still massive, but recent results have shown a clear momentum drag.
In the first half of 2025, Tesla made $8.61 billion from China, down materially from $9.23 billion in the same period last year.
In Q2 alone, China contributed $4.31 billion, which made up 19% of Tesla’s total revenue that quarter.
Related: Shark Tank’s Kevin O’Leary delivers 5-word gut punch on housing market
For perspective, China contributed $20.94 billion of Tesla’s $97.69 billion total sales in 2024 (21.4%), $21.75 billion in 2023 (22.5%), and $18.15 billion in 2022 (22.3%).
Of late, though, the top-line momentum has slowed down considerably, as Tesla has posted year-over-year sales declines in nine of the last 10 months.
July 2025
- Retail: 40,617 units (-12.1% year-over-year)
- Wholesale: 67,886 units (-8.4% year-over-year; -5.2% month-over-month)
June 2025 (bright spot)
- Retail: 61,484 units (+59% month-over-month; +3.75% year-over-year)
- Wholesale: 71,599 units (+0.8% year-over-year)
Q2 2025
- Retail: 128,803 units (-11.7% year-over-year)
- Wholesale: (Jan-Jul) 432,360 units (-13.7% year-over-year)
China EV market share
- Tesla: 7.6% (2025 YTD)
- Down from 10% in 2024 and well off its 15% peak in 2020
Tesla is now focusing its efforts on the swanky new three-row Model Y L, priced at $47,200, potentially regaining some of its lost ground and its ride-hailing segments through the back end of the year.
Tesla turns to DeepSeek as Grok hits a wall in China
In a surprising turn of events, Tesla’s China reboot might be powered by DeepSeek, an AI partner Elon Musk once emphatically brushed off.
Remember the WELT summit in February this year, when Musk said while commenting on DeepSeek’s exploits: “But is it some complete revolution in AI? No, it is not. xAI and others will soon be releasing models that are better than DeepSeek.”
Bloomberg reports that Tesla is working closely with Chinese tech groups DeepSeek and ByteDance’s Doubao in enhancing its in-car tools in China.
Related: Veteran analyst: Two forces could decide what’s next for S&P 500 in 2025
Doubao’s focus will be on voice-command tools to efficiently adjust the car’s temperature, navigation, and infotainment features. DeepSeek, meanwhile, will handle the AI core.
This pivot comes after Grok, the xAI model used in Tesla cars back home, reportedly ran into legal troubles in China.
That created a gap which needed to be filled quickly, leading to a sharp U-turn.
More News:
- Billionaire George Soros supercharges Nvidia stake, loads up on AI plays
- Tesla just got its biggest break yet in the robotaxi wars with a key permit
- Bank of America drops shocking price target on hot weight-loss stock post-earnings
Musk was mostly skeptical of DeepSeek when it launched back in January, but now he’s handing it the AI keys to Tesla’s China snapback.
With Chinese EV rivals like BYD, Nio, and Xiaomi gaining ground, Musk had no choice but to be proactive.
Tesla’s China sales fell 8.4% year-over-year from December to June, dropping again in July.
Grok vs. DeepSeek: why Musk’s AI hits a wall in China
Tesla’s pivot to DeepSeek shows that Grok, Elon Musk’s homegrown AI assistant, isn’t going to cut it in China.
Grok-3, launched earlier this year, brought some serious muscle into the game.
It brings robust multimodal reasoning into the game and a massive 1 million-token context window layered on tight integration with X’s real-time data feed.
Designed as a potent news-aware copilot, Grok has been pitched as the ultimate long-context assistant.
However, xAI hasn’t been without its controversies. Moderation controversies, along with a wave of public, searchable chat links, sparked some major trust concerns.
DeepSeek, on the flip side, continues gaining ground.
The Hangzhou startup’s open-weight R1 models offer top-tier reasoning at a fraction of the cost.
For perspective, its powerful app jumped to No.1 on iOS and Android, pulling tens of millions of active users. Version 3.1, released recently, adds hybrid reasoning modes and optimization for Chinese-made chips.
Unlike Grok, DeepSeek is localized and is hosted on robust Chinese cloud platforms, and remains dirt cheap. That makes it an excellent regulatory fit, along with being a commercial juggernaut.
Related: Top analyst resets Nvidia price target for surprising reason before earnings
#Elon #Musk #drops #shock #Uturn #disruptor