Tesla ought to watch its back: several Chinese companies are rising up to challenge the Elon Musk-led electric vehicle (EV) manufacturer in terms of sales and innovative thinking.

One such company, BYD, came close to matching Tesla’s performance in the Chinese EV market in the first half of this year, delivering nearly 650,000 EVs and plug-in hybrid cars to customers, a markup of around 315% from its 2021 total output. Indeed, the launch of the company’s electric-powered Han sedan has gained favor among buyers in its home market who see it as a reasonably-priced alternative to a Tesla EV.

While Tesla remains in the lead as far as the Chinese EV market is concerned, its lead over the competition has narrowed significantly over the past several months. The company still has a lead over BYD regarding the sale of battery-only models. However, it is currently under threat now that the latter, as well as other brands XPeng and NIO, are ramping up the production of higher-end EV models that can compete directly with theirs.

Likewise, the Warren Buffett-supported BYD has barely been impacted by the recent spate of city-wide pandemic lockdowns implemented in several major cities in Mainland China. On the other hand, Tesla saw its output dwindle as production at its plant in Shanghai rolled to a full stop early in the second quarter of this year.

A Growing Market in Their Own Backyard

Part of the reason why Chinese EV manufacturers are gaining ground is that the domestic market has grown by leaps and bounds.

In the past year alone, EV sales in China hit a total of 3.3 million, overshadowing the 608,000 units purchased in the United States. Both totals reflect the combined sales of both battery-only EVs and plug-in hybrids.

While aggressive government policies encouraging citizens to buy locally produced products has helped spur on the increase in sales, the fact that China also has manufacturers churning out smaller, lower-priced mass market models is also seen as a contributing factor to the sector’s growth.

According to Edison Yu, an equity analyst at Deutsche Bank, emergent Chinese EV companies have been actively working to target premium buyers domestically and are planning to export their products overseas in the near future. At the moment, competition in the Chinese EV market is strong thanks to a constant churn of offerings from companies like BYD, NIO, Hozon Neta, Leap Motor, and WM Motor.