Tesla has lost share to Chinese competitors, while Elon Musk’s political activities have led to steep declines in Tesla sales in Europe.

In a bid to regain market share in China, Tesla (NASDAQ:TSLA) is reportedly developing a lower-cost version of its best-selling Model Y in Shanghai. Citing people with knowledge of the matter, Reuters reported that the new model will be more compact and at least 20% cheaper to manufacture than the refreshed Model Y,

Tesla will make a lower-cost version of its best-selling Model Y in Shanghai, three people with knowledge of the matter said, aiming to regain ground lost during a price war in its second-largest market.

Elon Musk's company intends to unveil a more economical version of the Model Y SUV in order to recover its market share in China's highly competitive electric vehicle market. The company has also planned to set up mass production by 2026.

Telsa plans to make a slightly smaller Model Y that costs at least 20 percent less to build than the recently refreshed Model Y.