Chinese Tesla rival launches $22,000 EV with self-driving features. Here's why that's a big problem for Tesla.

• Chinese EV maker Xpeng just launched a new low-priced EV.
• The cheapest version of this car is nearly half the price of Tesla's Model 3 in China.

One of Tesla's Chinese rivals just launched its new low-priced EV with self-driving tech — and it shows just how big a challenge Elon Musk faces in staying competitive in the world's largest EV market.

Xpeng launched the Mona M03 EV on Tuesday, an electric car with a starting price of 119,800 yuan ($16,800).

The EV is available in three models, including a "Max" version with autonomous driving features that costs from 155,800 yuan ($21,900).

The cheapest M03 model is just over half the price of Tesla's most affordable car — the Model 3 — which starts at around 231,900 yuan ($32,500) in China.

Tesla has repeatedly cut prices in China over the past year as it tries to keep up with its local rivals, and is reportedly close to gaining approval to sell its full self-driving tech in the country.

Tesla faces brutal competition from Chinese companies capable of matching Tesla's tech-heavy electric cars while undercutting the company on price.

Xpeng's M03 joins a crowded market that includes smartphone maker Xiaomi's SU7, a smart car with an estimated 500-mile range and a price tag of around $30,000.

Industry leader BYD, which briefly overtook Tesla as the world's largest producer of EVs in late 2023, has also slashed prices this year. In March, it cut the sticker price of its Seal electric sedan by 10,000 yuan to 179,800 yuan ($25,230).

Premium EV giant Nio, meanwhile, is planning to launch an affordable EV brand called Onvo in China. This brand will compete directly with Tesla's Model Y.

The L60, the first car in the Onvo range, will be around $5,000 cheaper than the Model Y and offer drivers access to Nio's network of battery swapping stations, which the company says cuts charging times to as little as 3 minutes.

Nio, BYD, and Xpeng also advertise their versions of Tesla's driving assistance tech. BYD is racing to add more AI features to its vehicles to appeal to tech-savvy Chinese consumers.

These Chinese EV players are also being challenged by growing competition in this region and the pressure to compete on price.

Musk will likely hope that Tesla's Robotaxi, which he is reportedly keen to launch in China, gives the US automaker an edge.

Still, a victory for Tesla in the world's most cutthroat EV market is far from assured.

Tesla did not respond to a request for comment from Business Insider, sent outside normal working hours.