CNBC's Eunice Yoon reports on how Chinese companies, including smartphone manufacturer Xiaomi, are taking on Tesla in the electric vehicle space.

Chinese electric vehicle manufacturers are increasing their presence in the market, with Xiaomi launching the U7 SUV to compete directly with Tesla's Model Y. The U7 is priced slightly below the Model Y and includes advanced driver assistance technology at no extra cost, a feature that distinguishes it from Tesla. The vehicle also offers a longer range and several tech-focused comfort features, though some reviews note that its handling is not as precise as the Model Y.

Xiaomi has quickly gained traction in the EV sector, having sold 155,000 units of its previous model, the SU7, in the first half of the year. The new U7 has already received 240,000 pre-orders within its first 24 hours. Tesla's Model Y continues to perform well with 263,000 sales in the same period but faces increasing competition from Chinese automakers, who benefit from state support and a deep understanding of local consumer preferences.

How Chinese EVs are taking on Tesla

Thanks Sarah. Well it's called the Xiaomi U7. This is an SUV that's going head to head with Tesla's Model Y here at thirty five thousand dollars. It's just slightly less than the Model Y. It also includes a driver assistance technology. This is their most advanced one. They give that one away for free. So that's unlike Tesla. And then both are seen as performance cars. The Xiaomi is seen as one that has a bit of a better range. Now in China of course as you guys were talking about there are so many car makers that are putting out so many new models. But this one has been getting a lot of buzz. People have been saying this is a company Xiaomi that is a household name and they really like the look. In fact a lot of people are saying that the design elements remind them of a Ferrari. Now I got a chance to test drive this car. And there are a lot of fun tech elements. There's a magnetic tissue box gadgets which of course is like a vintage thing for for Xiaomi as well as the screen. It's much easier to use. People have been talking about how it's almost exactly like a smartphone. And then of course there are the some of the the comfort levels actually in the comfort elements are quite nice as well. You can lie all the way back as a driver in one of their seats. It doesn't handle though quite as well as one might hope. When I was driving it it said that the precision really wasn't necessarily there. And so that's one of the even though it's a good performance car. A lot of the commentary online has been that it's just slightly below the model Y in that aspect. Xiaomi though has done well. It is a new entrant to the EV market. It's entered the market last year with a competitor to the Model 3. This is called the Sue 7 and it sold one hundred and fifty five thousand of those cars in the first half of the year. The U7 is getting off to a pretty good start. The company claims that it has pre-orders in the first 24 hours of two hundred and forty thousand. Meanwhile of course Tesla's Model Y has been down in the first half. It's now seen its sales at two hundred sixty three thousand. It did put out a new refurbished model. Why people have been saying that it's better that they feel more comfortable. It's more luxurious than the the old model Y. But still it's facing a lot of competition. Guys why are why are the Chinese automakers so much better when it comes to producing these high tech very cool and lower cost EVs. I know they get state support. Is that really what the what the whole thing is. Well I mean that's what a lot of people have said that there's like a plenty of money that's going to them. But it's also that they really know their customer quite well when you're talking about a lot of tech features. You know I personally don't necessarily need a chat bot to be talking to me all the time when I'm in a car. But a lot of people like those types of features. And also when I mentioned some of the other fun features you know like the magnetic tissue box. You know I I thought OK that's kind of cool. There's like a lot of different ports that are inside this car this car. So you could plug in every single camera and every single gadget that you have. And people really like that type of thing. And then of course there is the performance aspect of it. It was performing really well. And I think actually Carl what I thought was interesting is I think it's more of a competitor to say Neo or X paying early auto. So if you're an investor one of those companies I would say pay attention. It used to be about the number of cup holders. Now it's about the number of magnetic tissue box. I always need tissues in the car. So I get it.

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Breakdown