Morgan Stanley is sounding the alarm on the rapidly intensifying electric vehicle (EV) race, suggesting China may have already clinched victory in the hardware battle—and Tesla knows it.

In a recent note, the investment bank argues that the launch of Xiaomi’s new SU7—which it describes as an “electric Ferrari at a Volkswagen price”—is a watershed moment. The SU7, and now the similarly styled YU7, blend premium design cues reminiscent of the Ferrari Purosangue and Aston Martin DBX with pricing closer to a Volkswagen ID.3 or Tesla Model Y, fundamentally raising the competitive bar for every global carmaker targeting the US$30,000–40,000 segment.

The speed and scale at which Chinese tech firms are combining high performance with affordability is forcing Tesla to shift its value proposition:

  • If China has already won the EV hardware race, the next battlefield—and margin pool—is full self-driving software and data
  • Tesla’s pivot from “best car” to “best autonomy stack” is seen as a direct response to the shrinking defensibility of its traditional EV advantage

Xiaomi’s breakneck pace is especially notable. The YU7 is only its second model, but even Ford’s CEO has admitted that U.S. legacy automakers are years away from fielding a comparable offering. By the time they catch up, Xiaomi’s third-generation vehicles will likely have moved the goalposts again.

Morgan Stanley projects Xiaomi’s EV business could generate RMB 233 billion (around US$32 billion) in revenue by 2027—roughly matching Tesla’s total automotive sales from 2020. That level of scaling in just three model generations compresses what used to take incumbent carmakers a decade or more.

While Western governments may use tariffs to slow the tide, Morgan Stanley warns that top-tier Chinese EVs are likely to find their way to premium buyers regardless. In fact, some global automakers are already exploring joint ventures or tech licensing deals with Chinese firms to gain access to critical EV and autonomy expertise while limiting capital expenditure and execution risk.

In the bank’s view, equity markets are placing too much emphasis on Tesla’s near-term vehicle margins, underestimating the impact of incoming low-cost Chinese competition. The note underscores Tesla’s strategic shift toward autonomy as the company’s next defensible growth engine—spanning robo-taxis, logistics, and other mobility platforms—as it braces for a future shaped increasingly in Beijing, not Detroit or Silicon Valley.

This article was written by Eamonn Sheridan at www.forexlive.com.Morgan Stanley is sounding the alarm on the rapidly intensifying electric vehicle (EV) race, suggesting China may have already clinched victory in the hardware battle—and Tesla knows it.In a recent note, the investment bank argues that the launch of Xiaomi’s new SU7—which it describes as an “electric Ferrari at a Volkswagen price”—is a watershed moment. The SU7, and now the similarly styled YU7, blend premium design cues reminiscent of the Ferrari Purosangue and Aston Martin DBX with pricing closer to a Volkswagen ID.3 or Tesla Model Y, fundamentally raising the competitive bar for every global carmaker targeting the US$30,000–40,000 segment.The speed and scale at which Chinese tech firms are combining high performance with affordability is forcing Tesla to shift its value proposition:If China has already won the EV hardware race, the next battlefield—and margin pool—is full self-driving software and dataTesla’s pivot from “best car” to “best autonomy stack” is seen as a direct response to the shrinking defensibility of its traditional EV advantageXiaomi’s breakneck pace is especially notable. The YU7 is only its second model, but even Ford’s CEO has admitted that U.S. legacy automakers are years away from fielding a comparable offering. By the time they catch up, Xiaomi’s third-generation vehicles will likely have moved the goalposts again.Morgan Stanley projects Xiaomi’s EV business could generate RMB 233 billion (around US$32 billion) in revenue by 2027—roughly matching Tesla’s total automotive sales from 2020. That level of scaling in just three model generations compresses what used to take incumbent carmakers a decade or more.While Western governments may use tariffs to slow the tide, Morgan Stanley warns that top-tier Chinese EVs are likely to find their way to premium buyers regardless. In fact, some global automakers are already exploring joint ventures or tech licensing deals with Chinese firms to gain access to critical EV and autonomy expertise while limiting capital expenditure and execution risk.In the bank’s view, equity markets are placing too much emphasis on Tesla’s near-term vehicle margins, underestimating the impact of incoming low-cost Chinese competition. The note underscores Tesla’s strategic shift toward autonomy as the company’s next defensible growth engine—spanning robo-taxis, logistics, and other mobility platforms—as it braces for a future shaped increasingly in Beijing, not Detroit or Silicon Valley.
This article was written by Eamonn Sheridan at www.forexlive.com.  Read MoreStock market update 

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