Tesla lost its position as the world’s largest electric vehicle manufacturer in 2025 after annual deliveries declined for a second straight year, pressured by waning demand, intensifying competition, and shifting policy dynamics. The company reported deliveries of 1.64 million vehicles last year, marking a 9% decline from 2024 and opening the door for China’s BYD to take the top spot with 2.26 million vehicles sold.
The reversal underscores a sharp change in fortunes for Tesla, which had previously enjoyed years of rapid expansion and market dominance. The downturn comes amid growing consumer backlash tied to CEO Elon Musk’s political positioning, the expiration of key US tax incentives, and stronger competition in overseas markets, particularly from Chinese manufacturers.
Deliveries miss expectations despite pricing adjustments
Tesla’s fourth-quarter deliveries totaled 418,227 vehicles, falling short of even the lowered consensus estimate of around 440,000. The results were further weighed down by the expiration of the $7,500 US federal tax credit for electric vehicle purchases, which was phased out at the end of September, dampening demand during a critical sales period.
In response to slowing sales, Tesla introduced lower-cost versions of the Model Y and Model 3 in October. The pared-down Model Y is priced just below $40,000, while the cheaper Model 3 comes in under $37,000. These models are aimed at revitalizing demand and improving competitiveness against lower-priced Chinese EVs in Europe and Asia, although their impact has yet to fully materialize in delivery figures.
Market reaction and earnings outlook
Tesla shares fell 2.6% on Friday to close at $438.07 following the delivery announcement. Despite the near-term weakness, the stock ended 2025 up around 11%, reflecting continued investor confidence in the company’s longer-term strategic ambitions beyond vehicle sales.
Looking ahead, analysts expect further near-term pressure on financial performance. Consensus estimates point to a roughly 3% decline in revenue and an almost 40% drop in earnings per share when fourth-quarter results are released in late January. While forecasts suggest sales and profitability could stabilize and recover as 2026 progresses, the near-term outlook remains challenging.
Strategic pivot toward autonomy and robotics
Investor optimism continues to hinge on Tesla’s pivot toward autonomous driving, robotaxi services, and robotics. The company began rolling out its robotaxi service in Austin in June, initially with safety monitors in vehicles and later expanding testing without them. Tesla aims to extend the service to several US cities this year, placing it in direct competition with Waymo, which has years of operational experience and a broader customer base.
Regulatory risk remains a significant hurdle. Tesla is currently facing multiple federal safety investigations and legal challenges. In California, the company risks a temporary suspension of its license to sell vehicles after a court ruling found it had misled consumers regarding vehicle safety features. These issues add uncertainty to the timeline for broader autonomous deployment.
Leadership, compensation, and longer-term vision
Elon Musk has repeatedly downplayed short-term vehicle sales trends, emphasizing that Tesla’s future lies in software-driven autonomy, energy storage, and humanoid robots designed for home and industrial use. Musk has said he expects software updates to enable hundreds of thousands of Tesla vehicles to operate autonomously without human intervention by the end of the year, while production of the AI-powered Cybercab, designed without a steering wheel or pedals, is planned for 2026.
To secure Musk’s continued focus on the company, Tesla shareholders approved a new, potentially massive compensation package in November. The move followed a recent ruling by the Delaware Supreme Court that reinstated Musk’s 2018 pay package, valued at roughly $55 billion.
While Tesla faces mounting competitive and regulatory challenges, investors remain divided between near-term delivery pressures and the longer-term promise of autonomy and artificial intelligence, setting the stage for another pivotal year for the EV maker in 2026.
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