SHANGHAI (Reuters) -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.

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

Elon Musk, the company’s chief executive, is fast losing out to Chinese electric carmakers in Tesla’s second-most-important market.

Not too long ago, Tesla had much of China’s new EV market to itself, but as local rivals like BYD are on their way to becoming international juggernauts, the American brand is now facing more competition than ever before. To combat this, Tesla’s Chinese division has reportedly developed a new, lower-priced version of the Model Y.

In view of Tesla's declining market share, insiders say the company is working on an affordable new model based on the Model Y. The vehicle is to be built in

It looks increasingly likely that the much touted $25,000 entry level Tesla known colloquially as the Model 2 will not be built.