Tesla’s China sales are falling compared to its rival BYD—and the drop could have been worse without its price war

Now, new data from one of Tesla’s most important overseas markets shows the sales challenge facing the electric carmaker.

Tesla delivered just over 74,000 China-made electric cars in September, according to data from the China Passenger Car Association released on Sunday. That’s a 10.9% decrease from the same period a year earlier, before the company started an aggressive series of price cuts, and is also a 11.9% decline from deliveries in August.

Tesla’s China rivals had a much better month. BYD delivered 286,903 vehicles in September, an over 40% year-on-year increase. CPCA data also reported year-on-year increases for other Chinese brands, including Nio and Geely, whose EV sales increased by 43.7% and 34.9% respectively on a year-on-year basis, though sold fewer cars than Tesla and BYD in absolute terms.

Tesla’s dropping sales in China come after the automaker posted disappointing third-quarter delivery figures. The company sold just 435,000 cars for the quarter ending September, a 6.7% decline from the previous quarter. Tesla blamed the drop on planned downtime for factory upgrades.

Tesla is still the leading electric carmaker globally, according to an analysis from global market research firm Counterpoint Research, but China’s BYD is catching up each quarter.

Competition in the world’s biggest EV market is intense. Tesla and its domestic rivals, such as BYD and other upstarts like Nio and XPeng, have been engaged in a fierce price war since late last year.

Earlier this month, Tesla released an updated version of the Model Y in China with improved configurations but at the same starting price of just over $36,000. In comparison, BYD’s ATTO 3, known as Yuan Plus domestically, starts at just under $19,000.

“The question is: What would the sales figure be like if Tesla didn’t launch the price war?” Bill Russo, CEO of Shanghai-based investment advisory firm Automobility, says. “The price war allowed them to hold their share in China,” he continued.

Russo suggests that Tesla faces different problems inside and outside of China. “EV sales outside of China are rising incrementally, but it’s not exponential. China [sales] are exponential, but China is competitive so you got to be very aggressive on price,” he says.

Tesla CEO Elon Musk admitted earlier this year that BYD’s vehicles were “highly competitive” in response to an X user sharing a 2011 video of him laughing at the quality of the Chinese company’s vehicles.

Now, BYD is giving Tesla a run for its money, increasing its market share in China and now planning to push into Europe, Latin America and other Asian markets.

Tesla’s presence in China could also complicate its sales in other markets.

Recently, Tesla emerged as a potential target for an EU probe into Chinese state subsidies for the EV market. The bloc officially launched its investigation on Oct. 4, with a particular focus on new battery-powered electric vehicles.

The investigation could last up to a year, and officials could impose anti-subsidy duties if they find that Tesla got a competitive advantage from Chinese state subsidies.

The probe is “not only limited to Chinese brand vehicles,” and could be extended to “other producers’ vehicles if they are receiving production-side subsidies,” Valdis Dombrovskis, the EU’s trade commissioner, said in a late September interview with the Financial Times.

Workers at Tesla’s Shanghai Gigafactory make around 80,000 vehicles a month. Roughly 40% of the factory’s output is exported, much of it to the EU.