As Tesla Exits Into AI, Can China Become An Auto Export Capital?

Makers of electric vehicles face a messy global market. After years of support from governments and excitement from consumers, automakers find themselves suddenly on their own.

In the U.S., this has meant a retraction of effectively all federal subsidies, as well as regulatory hostility toward supply chains that are not entirely domestic. European automakers have been slammed by harsh tariffs from the U.S. and may face rising competition as some European countries crack the door for automakers from China.

China — the world’s largest market for EVs by a long shot — has faced multiple issues. Years of generous government support led to an overall market with too many carmakers and too much manufacturing capacity. This fueled price wars draining the industry’s profit. Add to that, the scaling back of generous government sales-tax subsidies at the end of December and the result was one of the worst starts to a year for auto sales in China since the Covid pandemic struck in 2020.

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China Automakers Go Global

As a result, top China names are looking abroad. That effort has received some unintentional aid from American electric vehicle pioneer Tesla (TSLA), which is ready to leave car sales behind for the greener pastures of AI.

So after years of declining domestic sales, Chinese EV companies like BYD (BYDDF) and Geely Auto are in the midst of a breakneck expansion overseas. But, as they make progress in Brazil, Europe, Canada and even in the U.S., are investors paying attention?

U.S. stock market action is signaling, just maybe, yes. After a monthslong stock slide, shares of BYD,** Xpeng** (XPEV), Nio (NIO) and Xiaomi (XIACY) posted some of their strongest weeks in months. Far too early to call it a turnaround of any sort, but the Chinese names did rise while Tesla angled toward its seventh decline in eight weeks.

A Divided Electric Vehicle Market

The stock action does underscore a global electric vehicle market being pulled in two directions. On one side are the Chinese EV makers, working feverishly to graduate from domestic success story to corporate aristocracy. On the other is Tesla, which has staked its future on its nascent robotaxi service, ever-evolving Full Self-Driving (FSD) software, and the eventual mass production of humanoid robots.

Tesla stock reached an all-time high of 498.83 in December, according to MarketSurge. But since then, it is down around 25%. Its year-to-date declines are 17%.

U.S.-listed shares of BYD, which dethroned Tesla as the world’s top electric vehicle maker last year, are starting to turn around a slump that dates back to May. So far this year, they are up more than 7%. On March 16, the stock rose 7.4% — its best day in over a year — after reports that its factory in Brazil was preparing to ship 100,000 cars across Latin America.

Meanwhile, Xiaomi and XPeng are down 17% and 11%, respectively in 2026.

New EV Regulation In China

The Chinese EV market is undergoing significant structural changes, as the government tries to course-correct after years of price wars left virtually none of the country’s many brands unscathed.

Around 2024, car companies kicked off a fierce price war in an effort to seize market share. The release of cheap models and financing rates may have been good for consumers, but it gnawed at automaker profits. Cheaper cars sell faster, but do little to bolster a balance sheet.

In response, the Chinese government aimed to slow the industry’s race to the bottom by reforming its EV subsidies. The new, watered-down version of the incentive calculates the subsidy a buyer will receive based on the price of the vehicle, rather than the prior, flat rate method. The flat rate pushed consumers toward cheaper electric vehicles because the subsidy represented a greater percentage of the car’s overall price.

Even parts suppliers became casualties of the price wars. Some automakers forced suppliers to lower their prices — even threatening to withhold payment if they didn’t — putting pressure on the entire supply chain. In order to avoid ripple effects that could weaken the sector to the extent it might collapse, China’s State Administration for Market Regulation also implemented a rule that banned selling cars below cost starting in February.

China’s Electric Vehicle Sales Slump

These policy changes coincided with the country’s typical lull in auto sales in January and February. Total retail sales of passenger new energy vehicles (NEV), which include battery electric and plug-in hybrid cars, fell 26% in the first two months of 2026 compared to the year before, according to data from the China Passenger Car Association (CPCA). Over the same period, BYD’s retail sales of NEVs in China fell 55%, according to CPCA data. China’s second-largest EV maker, Geely, saw its NEV sales drop 20%. Meanwhile, Xiaomi NEV sales in China rose 27% through February, bolstered by 70% growth in January.

Tesla saw retail sales in China grow 43% in February. But a historically bad January, means quarter-to-date retail sales volume remains down about 6%, according to BNP Paribas auto analyst James Picariello. “We would avoid reading too much into February’s comp,” he told IBD.

How To Read Stock Charts

Between the seasonal trends and the new government regulations automakers have reason to believe the worst is behind them.

“Competition is moving beyond price cuts and is more on new launches (and) feature upgrades,” HSBC China autos analyst Yuqian Ding said in an analyst note published this week.

To revitalize sales in China, electric vehicle makers are rolling out a slew of new models, replete with state-of-the-art features. For example, Xiaomi on March 19 unveiled the latest version of its SU7 sedan, a direct rival to the Tesla Model 3. The 2026 SU7 has a battery range of 560 miles and can charge 415 miles in less than 10 minutes. Its also about $2,200 cheaper than a Model 3 in China.

BYD has at least six new cars in its lineup, ranging from the cheap Song Ultra EV to the Datang luxury SUV. Though, perhaps BYD’s most talked about product release was its new Blade battery that can charge from 10% to 70% in just five minutes.

But old habits die hard. Both Tesla and Xiaomi introduced zero-interest loans on certain models in China.

Doors Beginning To Open

With a murky outlook for domestic sales, Chinese EVs companies have been marshaling their forces for a global expansion. They have pushed deeper into new markets in Europe, Latin America and Southeast Asia.

In fact, February was the first month BYD sold more cars overseas — 100,600 — than in China — 89,590. Having overtaken Tesla as the world’s top EV company, it has become the poster child of Chinese global auto expansion. At the start of the year, BYD began trial production at a new factory in Hungary, which will bypass EU tariffs. Meanwhile, its plant in Brazil (opened last year) plans to ship 50,000 cars each to Mexico and Argentina this year.

Geely’s exports through February are up 129%, enough to help it buck the industry’s broader sales decline, with total sales up 1% over the same period, according to company reports.

Doors are also beginning to open in North America. Canada lowered its tariffs on EVs made in China from 100% to 6.1% and will allow up to 49,000 cars to be imported into the country. BYD, Geely and Chery have already filed paperwork to begin importing cars into Canada.

The U.S. continues to resist EV imports from China. However, President Donald Trump in January floated the idea of allowing Chinese car companies into the U.S., if they built factories stateside. BYD does manufacture electric busses and trucks at a factory in Lancaster, Calif., which it sells to local transit agencies, sanitation departments and private buyers like shipping companies.

Tesla’s AI Push

As Tesla’s Chinese rivals move to eat up more of its EV market share around the world, Tesla CEO Elon Musk is increasingly moving away from the car business altogether. Musk has made clear that he considers robotics and self-driving cars to be the company’s future. Tesla’s future lies in the continued rollout of its Full Self-Driving (FSD) software, robotaxi service, and the eventual mass production of its Optimus robots. In January, Musk announced that Tesla would discontinue the Model S and Model X and refurbish their production lines at the Fremont, Calif., factory to make Optimus robots.

However, in the present, Tesla must rely on FSD to fend off Chinese competitors, eager to elbow their way onto the world stage, according to BNP Paribas’ Picariello.

“We view FSD as Tesla’s key competitive advantage when competing against Chinese automakers, but as of now, FSD (Supervised) is predominantly just available in North America,” Picariello said. “Given the momentous influx of Chinese exports to Europe, Tesla’s EU business would greatly benefit from government approval to properly offer FSD (Supervised) … which would give Tesla a definable advantage, as Chinese exports offer more basic advanced driver assistance systems.”

Tesla Plans $20 Billion In Capex

Some of Tesla’s biggest projects for the upcoming year involve building out the supply chain it will need to generate enough chips and energy for the vast AI systems needed to power robots and self-driving cars. This week Musk said work on Tesla’s in-house semiconductor, dubbed “Terafab,” will begin this month. On a recent earnings call, he teased a vertically integrated energy project that would eventually produce 100 gigawatts of solar cells a year. Even without those two projects Tesla already plans to spend $20 billion in capex in 2026.

Though Tesla is far from the only EV company with ambitions and know-how to develop robotics and self-driving cars. “We view companies in China as some of the most capable competitors to both Tesla’s Optimus bots and FSD (Supervised),” Picariello said.

For example, the Guangzhou-based XPeng has been equally up-front about its desire to build robots and a suite of autonomous vehicles, like robotaxis and flying cars. Earlier this year, XPeng started road trials for its robotaxi-specific car in China. Tesla plans to do the same in the U.S. for its Cybercab model this year.

Despite Tesla’s head start, it won’t be able to coast by on reputation alone in an autonomous future. “Autonomous driving is now becoming a scale story, where the winners will be defined by rollout speed, fleet expansion, and commercialization capability rather than a technology narrative alone,” HSBC’s Ding wrote.

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