Tesla has lost its position as the world’s largest electric vehicle manufacturer after annual sales dropped for the second consecutive year, pressured by backlash against CEO Elon Musk’s political views, the end of U.S. tax incentives, and growing international competition.
The company reported delivering 1.64 million vehicles in 2025, a 9% decline from the previous year. Chinese automaker BYD overtook Tesla by selling 2.26 million vehicles, becoming the new global leader in EV sales.
The shift marks a dramatic turn for Tesla, once seen as an unstoppable force that surpassed traditional automakers and helped make Musk the world’s wealthiest individual. The sales slump came despite a high-profile endorsement last year from President Donald Trump, who publicly praised Musk and announced plans to purchase a Tesla after showcasing the vehicles at the White House.
In the fourth quarter, Tesla delivered 418,227 vehicles, missing analysts’ already-lowered expectation of about 440,000 units, according to FactSet. Demand was further weakened by the expiration of a $7,500 federal tax credit for EV buyers, which the Trump administration phased out at the end of September.
Tesla shares fell 2.6% on Friday to $438.07. Still, investors remain optimistic about the company’s long-term vision, particularly Musk’s plans to expand robotaxi services and introduce humanoid robots for home and workplace use. Reflecting that confidence, Tesla’s stock ended 2025 up roughly 11%.
The most recent quarter marked the debut of lower-cost versions of the Model Y and Model 3, unveiled in October to stimulate demand. The Model Y now starts just below $40,000, while the Model 3 is priced under $37,000. These models are expected to help Tesla better compete with lower-priced Chinese vehicles in Europe and Asia.
Looking ahead to earnings expected in late January, analysts anticipate a 3% decline in quarterly sales and nearly a 40% drop in earnings per share. However, many forecast a gradual recovery in sales and profits as 2026 progresses.
Although Musk previously predicted a strong rebound in vehicle sales, investors have largely shifted their attention to Tesla’s evolving business focus. Musk has emphasized that the company’s future lies more in autonomous driving, energy storage, and robotics than in traditional car sales.
Tesla launched its robotaxi service in Austin in June, initially with safety supervisors onboard before moving to limited testing without them. The company aims to expand the service to additional cities this year but faces stiff competition from Waymo, which has operated autonomous taxis for years, as well as regulatory hurdles. Tesla is currently subject to multiple federal safety investigations and could temporarily lose its license to sell vehicles in California following a court ruling that it misled consumers about vehicle safety.
“Regulation will be a major challenge,” said Wedbush Securities analyst Dan Ives, noting the risks involved with autonomous technology. Still, he believes Tesla’s self-driving initiatives will ultimately prevail.
Musk has said that software updates could soon allow hundreds of thousands of Teslas to operate fully autonomously, and the company plans to begin producing its steering-wheel-free Cybercab in 2026.
To keep Musk engaged, Tesla’s board approved a new, potentially massive compensation package backed by shareholders in November. Musk also received a major boost recently when Delaware’s Supreme Court reinstated a $55 billion pay package originally awarded in 2018.
Musk could further increase his wealth later this year if SpaceX goes public, an initial public offering that analysts expect to be one of the largest ever.