Tesla's annual vehicle deliveries declined for the second consecutive year, falling 9% to 1.63 million units in 2025, according to figures released by the company. This decrease from 1.79 million vehicles in 2024 was attributed to the removal of the federal tax credit in the U.S. and increased competition from Chinese electric vehicle manufacturers.

The company's fourth-quarter sales also saw a significant drop, with 418,227 vehicles delivered, a 15.6% decrease compared to the same period last year. This figure was notably below analysts' expectations, contributing to a more than 2% drop in Tesla's stock price as the market opened after the New Year holiday. Of the total annual deliveries, approximately 50,850 units comprised the Cybertruck, Model X, and Model S.

The decline in sales allowed China's BYD to overtake Tesla as the global leader in electric vehicle sales. BYD delivered 2.26 million EVs in 2025, surpassing Tesla's total by over 600,000 vehicles. Tesla's market share has been particularly impacted in Europe and China, where BYD and other Chinese competitors have gained significant ground.

While Tesla faces increased competition in the United States, it is not from Chinese automakers, which are currently barred from selling vehicles in the country. The primary factor affecting Tesla's U.S. sales appears to be the elimination of the $7,500 federal tax incentive, which had a significant impact on fourth-quarter sales.

The removal of the tax credit increased the upfront cost for consumers purchasing Tesla vehicles, making them less competitive compared to other brands still eligible for incentives. This change in policy, combined with the rise of compelling EV offerings from established automakers and new entrants, has created a more challenging market environment for Tesla.

Looking ahead, Tesla is expected to focus on expanding its production capacity, particularly for the Cybertruck, and introducing new technologies to maintain its competitive edge. The company is also likely to explore strategies to mitigate the impact of the lost tax credit, such as offering price reductions or enhanced features. The electric vehicle market is rapidly evolving, and Tesla's ability to adapt to these changes will be crucial for its future success.