Tesla has ceded its crown as the world’s top electric vehicle manufacturer to China’s BYD, after annual sales fell for a second consecutive year.

The decline comes amid rising competition, the end of US EV tax credits, and polarizing political moves by CEO Elon Musk.

Tesla sold 1.64 million vehicles in 2025, a 9 percent decline from the previous year, compared with BYD’s 2.26 million units, according to company reports. The Chinese automaker’s growth was driven by strong performance in Europe and Asia, where cheaper EV models are increasingly capturing market share.

The fourth quarter also fell short of expectations, with Tesla delivering 418,227 vehicles, below the recently lowered analyst target of 440,000.

Factors behind Tesla’s sales decline

The phase-out of the $7,500 US tax credit for electric vehicle purchases in September 2025 significantly impacted demand. Combined with growing competition from Chinese EV makers, Tesla’s market position has weakened, especially in Europe.

Elon Musk’s involvement with a federal “government efficiency” panel (DOGE) and his support for former President Trump sparked protests at Tesla facilities and contributed to a temporary sales slump. Musk resigned from the panel in May, aiming to reassure investors.

Tesla looks beyond traditional EVs

Despite sales setbacks, Tesla investors remain optimistic about the company’s future, which includes driverless robotaxi services and humanoid robots for homes. Tesla recently launched the more affordable Model Y and Model 3 to compete with lower-priced Chinese EVs.

Shares ended 2025 up roughly 11 percent, reflecting faith in Musk’s long-term vision. Musk also secured a $55 billion pay award after a Delaware Supreme Court ruling, and the public offering of SpaceX later this year could potentially make him the world’s first trillionaire.

Global EV sales rose 28 percent in 2025, highlighting BYD’s rapid expansion and Tesla’s challenges in retaining dominance. Analysts note that Tesla’s focus on advanced robotics and AI may redefine the company’s growth strategy but raises questions about near-term automotive performance.