Tesla on Friday reported a second straight annual drop in electric vehicle sales, as the phaseout of a $7,500 federal EV tax credit and mounting competition weighed on demand. With the decline, Tesla lost its title as the world's bestselling electric vehicle maker.
The company said it delivered 1.64 million vehicles in 2025, down 9% from 1.79 million in 2024. Sales also declined in the fourth quarter, tumbling 15.6% to 418,227 vehicles, short of the 440,000 that analysts polled by FactSet expected.
China's BYD, which sold 2.26 million vehicles last year, is now the world's biggest EV maker.
Tesla has struggled amid heightened competition from rival automakers, as well as a backlash from some consumers over CEO Elon Musk's involvement with the Trump administration. Musk had headed up the Department of Government Efficiency, or DOGE, where he oversaw cuts to the government workforce and some funding programs before stepping back in May to refocus on Tesla.
At the same time, the expiration last fall of the $7,500 EV tax credit likely hurt demand as it removed an incentive that had enticed some consumers to buy or lease electric vehicles, which tend to be pricier than gas-powered cars.
Despite such challenges, Tesla's stock finished 2025 with a gain of roughly 11%, as investors hope Musk can deliver on his ambitions to make the company a leader in robotaxi service and get consumers to embrace humanoid robots that can perform basic tasks in homes and offices.
Although Tesla's sales came in lower than analysts had forecast, the results were better than some had feared, noted Wedbush Securities analyst Dan Ives. Investors, meanwhile, are betting that Tesla's other businesses — its energy unit and its push into robotics, including a humanoid robot and a robotaxi service — can serve as growth engines.
"We estimate the AI and autonomous opportunity is worth at least $1 trillion alone for Tesla," Ives said in a report.
He added that Tesla's core automotive division is facing "a more difficult demand environment following the end of the EV tax credit while Europe remains a headwind to its deliveries."
Shares of Tesla rose $4.16, or 0.9%, to $453.88 in early trading Friday.
Cheaper Tesla models
The latest quarter was the first reporting period that includes sales of stripped-down versions of the Model Y and Model 3, which Tesla unveiled in early October as part of an effort to revive sales. The new Model Y costs just under $40,000, while the cheaper Model 3 sells for under $37,000. Those versions are expected to help Tesla compete with Chinese models in Europe and Asia.
Tesla faces fierce competition both abroad and in the U.S. from rival EV makers. BYD — known as "Biyadi" in Chinese or by the English slogan "Build Your Dreams" — now dominates China's highly competitive EV market, which is the world's largest.
While BYD vehicles aren't sold in the U.S., its sales in Europe, Australia and other regions around the world are surging, thanks partly to pricing that is generally lower than Tesla's and other U.S. automakers, according to the BBC.
Edited by Alain Sherter
The Associated Press contributed to this report.
Tesla loses top spot in annual electric vehicle sales to China's BYD
Tesla loses top spot in annual electric vehicle sales to China's BYD
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