3 reasons Tesla's sales are tanking

Summary

Tesla’s US sales down 15% in Q2 2025 vs 2024 and 20% for first half 2025 vs 2024.
Decline due to competition, aging Tesla range, and Musk’s politics affecting sales.
Tesla needs a new model and focus on EVs with global competition increasing.

Tesla’s second-quarter sales in 2025 in the US were down 15% compared to Q2 2024, and 20% for the first half of 2025 compared to 2024. But last year was already lower than the peak year of 2023. What does this mean, why did this happen, and how important is it?

First things first. 2025 is a wonky year for car sales, with tariffs, Elon Musk’s political shenanigans, and the phasing out of EV tax credits all causing a bumpy ride. EV sales were up in Q1 this year, perhaps because of panic buying around tariffs or other policy moves, while Tesla continued the downward slide that started in 2024.

Some perspective is needed at this point. When Tesla sales declined in 2024, it dropped from 55% of the EV market to 48%. That is still bigger than the next three or four brands put together. Although Tesla now has five passenger vehicles on the market, with the Cybertruck launched a couple of years ago, almost all of its sales come from the Model Y and Model 3. Both these models showed a significant decline in sales in ’24, and even more in Q1 and Q2 this year.

There is consensus that the decline of Tesla can be attributed to three main factors: much greater competition, Tesla’s aging range, and Musk’s politics. Let’s look at these.

Tesla’s ill-fated Cybertruck destined for failure

It’s difficult to see how Tesla could pull out a victory at this point.

Increasing competition

No longer the global leader

Tesla has been the gold standard in EVs forever. Over the last 10 years, no other EV could touch it, but this position of dominance is fading rapidly. In the US market, it is protected from greater competition. The Model Y and 3 are facing head-to-head competition from Hyundai and Kia, as well as Volvo, VW, Merc, BMW, and Audi. The Toyota bZ, Nissan Ariya, and Honda Prologue are joining the excellent Chevy Equinox EV as value-for-money alternatives. The fading Ford Mustang Mach-E is one makeover away from reasserting itself in the US.

In China, the biggest market, and the EU, Tesla is getting creamed by Chinese EVs like BYD, Geely, and even a phone maker like Xiaomi. Chinese brands are in Europe now, and having the same effect on Tesla sales. BYD is now the biggest EV brand in the world, and it is building factories in Hungary for the EU, and in Mexico.

Tesla’s cheaper Model Y is doomed no matter what

It feels like Tesla is thrashing in the water more than responding to customers.

Tesla’s aging range

Not what you think

Most of Tesla’s range is getting old, with the Model S launched in 2012 and the Model X in 2015. The Model 3 and Y were launched in 2017 and 2020, and only the highly problematic Cybertruck, announced in 2019 and launched in late 2023, is still fresh for a certain value of fresh.

EVs are not like other cars

An EV model has a longer shelf life than other cars. You can get new batteries every year, with new charging abilities. Software can be kept fresh with over-the-air updates. But in the face of competition, Tesla can no longer rest on its laurels as before. The Model Y and 3 are still the EVs to beat, but this will not last.

When you give the five-year-old Model Y new headlights and a tweaked range, it counts as a facelift and can look a bit dated next to the new kids on the block. In a world where you can get a mainstream Chevy Equinox EV for way under $40K, and high-performance and long-range contenders for the same price as a Y or 3, Tesla needs a new model to disrupt the market.

Where is the Model 2?

You can get a really nice EV crossover in the US for around $30K, in the rest of the world for way less than that. The Hyundai KONA electric starts at about $32K, while the way more upmarket Ioniq 6 starts at under $40K. The KONA is smaller, less powerful, but loaded with EV must-haves, while the cheap Ioniq is part of a range that challenges the Teslas in performance, range, and value proposition. The fact is, you cannot make a low-spec Model Y or Model 3, as the performance of these cars is baked into the brand identity.

What you can make is the long-awaited, much-speculated Model 2, a smaller, less powerful, more affordable EV for the masses. Tesla did in fact make this car, but they called it the Cybercab, known as the Robotaxi. If you took out the expensive self-driving stuff and added two more seats and a steering wheel, the Cybercab could work as an affordable sub-compact EV.

There seems to be no reason not to develop the Model 2 on the same platform as the Cybercab, and even make it on the same assembly line. Buyers will surely line up for a sub-$30K Tesla.

I don’t know much about making cars, while Elon Musk undoubtedly does. But I am seriously interested in cars, especially EVs, while Musk seems to have lost interest.

Will anyone use Tesla’s robotaxis when they come to Austin? Probably not

The company has several serious obstacles in its way, even if the tech is perfect.

The distracted CEO

Everything but EVs

A Cybercab parked in front of a building

Tesla

At one time, Elon Musk was seen as a flesh-and-blood Tony Stark, a real-life tech billionaire who could build stuff the world needed, and do so in a better and more interesting ways than anyone else. Tesla and SpaceX ruled the tech universe, and Musk ruled both companies.

Then he bought Twitter in a messy transaction, while The Boring Company and Neuralink, and other ventures popped up to distract him. Musk was by then the richest person in the world, because Tesla’s stock was valued way more than the actual performance of the company justified. In December 2024, Tesla was worth more than the next 35 carmakers combined.

Investors betting on the next big thing

Musk was promising Tesla investors autonomous driving, AI, and humanoid robots. Those with a lot of money to invest bought his ideas. They were right in a way — if someone who created an electric car company and a private rocket enterprise out of nothing in very short time promised the next tech, why not jump in at the bottom?

The problem was that Musk was focusing on the next big thing, which distracted him from his actual job as Tesla’s CEO: making money out of electric cars. And then it got worse.

Musk and Doge, and more

Liberal California is Tesla’s most valuable market in the US. So when Musk publicly and rather spectacularly embraced President Trump on the campaign trail, eyebrows were raised. He spent $300m on the campaign, which was his constitutional right, but probably did not endear him to his core market.

Then he was appointed to head DOGE to cut government waste. This he did in a cruel and rather tone-deaf way that garnered a lot of criticism.

Musk left government service, promptly got into an online war with President Trump, and subsequently walked back his attack.

Shareholders were relieved, and Tesla stock recovered. Then the war started again, the world’s richest man against the most powerful. Tesla tanked again, and instead of fixing the things that hurt the sale of his cars, Musk has now started his own political party.

So now what?

Tesla is still the biggest EV company in the US. But the US is no longer the most important market in the world. BYD in China has surpassed Tesla as the global EV leader, and there are a host of other Chinese brands pushing BYD. Tesla is a global brand, with factories in China and Europe, and it needs to compete globally to stay relevant in its home base of the USA.

It will really help Tesla if Musk can stop his extracurricular activities and focus on making his excellent electric vehicles, while running the company in the way his customers demand.