Tesla annual sales decline 9% as it’s overtaken by BYD as global EV leader

Tesla’s electric vehicle sales experienced a second consecutive year of decline in 2025, falling 9% to 1.63 million units globally, according to company figures. This downturn is attributed to a combination of factors, including the expiration of the U.S. federal tax credit and increasing competition, particularly from Chinese EV manufacturers. The news sent Tesla stock down over 2% as markets reopened following the New Year holiday.

The company reported fourth-quarter deliveries of 418,227 vehicles, a significant 15.6% decrease year-over-year and below analyst expectations. While Tesla continues to sell a mix of models, approximately 50,850 vehicles delivered were classified as “other models,” encompassing the Cybertruck and older Model X and Model S variants.

The Decline in Tesla Electric Vehicle Sales

The loss of the $7,500 federal tax credit in the United States appears to have had a substantial impact on sales, particularly in the fourth quarter. A surge in purchases occurred in the third quarter of 2024 as consumers sought to take advantage of the incentive before its expiration, resulting in a record 497,099 vehicles sold. However, this momentum proved unsustainable.

This decline comes as Tesla CEO Elon Musk increasingly focuses the company’s efforts on artificial intelligence and robotics, outlining a vision of “sustainable abundance” encompassing energy generation, storage, and automated systems. Despite this strategic shift, the vast majority of Tesla’s revenue still originates from its core EV business. In the third quarter of 2024, vehicle sales accounted for $21.2 billion of the company’s $28 billion in total revenue.

Competition Heats Up

Tesla’s dominance in the global EV market is being challenged on multiple fronts. Chinese automaker BYD surpassed Tesla in global EV sales in 2025, delivering 2.26 million vehicles. This shift highlights the growing strength of Chinese manufacturers, who are rapidly expanding their product offerings and technological capabilities.

Competition is also intensifying within the United States. While Chinese automakers are currently restricted from directly selling vehicles in the U.S. market, established automotive companies and emerging startups are introducing new electric models. This increased competition is putting pressure on Tesla’s market share and pricing strategies.

Regional Performance and Market Dynamics

Tesla has experienced market share erosion in both Europe and China. Increased competition from local manufacturers in these regions, coupled with economic factors and changing consumer preferences, have contributed to the slowdown in sales. The European market, in particular, is seeing a rise in affordable EV options from European brands.

Meanwhile, Tesla is attempting to mitigate the impact of the tax credit’s removal through price adjustments and promotional offers. However, these measures have not fully offset the decline in demand. The company is also investing in expanding its production capacity and developing new models, including the Cybertruck, to stimulate future growth.

Broader Automotive Industry Trends

The overall automotive industry is undergoing a significant transformation, driven by the transition to electric vehicles and advancements in autonomous driving technology. The pace of EV adoption is influenced by factors such as government regulations, infrastructure development, and consumer acceptance. The availability of charging infrastructure remains a key barrier to wider EV adoption, particularly in certain regions.

Additionally, supply chain disruptions and raw material costs continue to pose challenges for EV manufacturers. The price of key battery materials, such as lithium and nickel, has fluctuated significantly in recent years, impacting the cost of producing electric vehicles. These factors contribute to the overall complexity of the automotive market.

Looking ahead, Tesla is expected to announce further details regarding its AI and robotics initiatives in the coming months. The company’s ability to successfully diversify its revenue streams and maintain its technological edge will be crucial for its long-term success. Analysts will be closely watching Tesla’s first-quarter 2026 sales figures, scheduled for release in April, to assess the effectiveness of its strategies and the overall health of the EV sector. The impact of potential changes to government incentives and the continued evolution of the competitive landscape will also be key factors to monitor.