Turkey's sudden tax increase exacerbates Tesla's troubles in Europe

According to Zhitong Finance APP, as Tesla (TSLA.US) faces a sales slump in the European market, its strategy to compensate for performance gaps through growth in the Turkish market is facing significant challenges. Reports indicate that Turkey has raised the minimum special consumption tax on electric vehicles (including Tesla's best-selling Model Y) from 10% to 25%. Turkey is one of Tesla's fastest-growing markets.

The unexpected tax increase in Turkey exacerbates the challenges faced by Tesla CEO Elon Musk, who has warned that the company will face difficulties for the next year or longer due to the gradual elimination of U.S. electric vehicle subsidies and slow progress in autonomous vehicle development.

Turkey has become an increasingly important market for Tesla, helping to alleviate the company's declining demand in other parts of Europe. Musk specifically mentioned this country during the company's quarterly earnings call on Wednesday.

In June, Tesla's sales in Turkey surged by 171%, reaching 7,235 units, with the Model Y leading the electric vehicle sales chart.

Tesla's success in Turkey is attributed to a Model Y variant specifically designed for the local market, aimed at fitting within the lower tax rate range. Previously, Turkish consumers could purchase this model for about 1.87 million lira (approximately $46,100) under the 10% tax rate. However, the new tax policy could increase the price by about $6,000, potentially harming demand, especially as many internal combustion engine competitors maintain relatively unchanged tax rates.

This tax increase will not only affect Tesla but also a range of competitors reliant on the Turkish market. Other global manufacturers such as Volkswagen, Hyundai, and Stellantis (STLA.US) also sell affordable electric vehicles in Turkey and may be impacted by the policy shift.

Tesla Deeply Stuck in "Waterloo" in Europe

According to data released by the European Automobile Manufacturers Association (ACEA) on Thursday, car registrations in the EU in June fell by 7.3% year-on-year to 1.01 million, contrasting sharply with the 1.6% increase in May, highlighting the severe situation currently faced by automakers.

Overall, car sales in the first half of 2025 decreased by 1.9% year-on-year. The market share of pure electric vehicles in the first half of 2025 was 15.6%, still far from the level required for the transformation phase. Meanwhile, the total market share of gasoline and diesel vehicles dropped from 48.2% in the same period of 2024 to 37.8%.

In the battery electric vehicle (BEV) sector, registrations grew by 7.8%. Nevertheless, Tesla's market share has declined for the sixth consecutive month. In June, Tesla's sales in the EU, UK, and European Free Trade Association fell by 22.9% year-on-year, with market share dropping from 3.4% to 2.8%.

At the same time, the sales of the four major European automakers—Volkswagen, Stellantis, Renault, and Hyundai—were all below the levels of June 2024.

As of the time of publication, Tesla's pre-market shares fell by 5.9%