The vision of autonomous driving is difficult to decipher. Musk warns of a "challenging quarter." Is Tesla's trillion-dollar market value on the brink of collapse?

The Zhitong Finance APP noted that Tesla (TSLA.US) is facing a sales slump, with electric vehicle deliveries expected to decline for the second consecutive year. CEO Elon Musk warned that as the U.S. car purchase incentive policies come to an end, the company may face "several tough quarters" in the future.

Musk himself is responsible for Tesla's predicament. His polarized political stance has alienated car buyers in key markets, and even after he withdrew from Washington affairs and publicly broke with U.S. President Trump, consumers have not returned to the showrooms.

However, Tesla's problems run deeper than the consumer boycott seen in recent months. While the automaker has revamped its most popular Model Y, it has yet to launch a new, more affordable model to rejuvenate its product line.

A cheaper model is expected to be launched later this year, but it may not be an entirely new model—Musk stated it would be similar to the Model Y. Such a limited product offering makes Tesla vulnerable to competition, especially from rivals in China.

Tesla's market value of about $1 trillion indicates that investors remain optimistic. They attribute the company's value increasingly to Musk's vision of a future filled with autonomous vehicles and humanoid robots, rather than the current human-driven electric vehicles.

Tesla Sales Plummet

First-quarter deliveries fell to a near three-year low. Part of the reason was the redesign process of the Model Y, during which Tesla paused production at various assembly plants to overhaul the SUV's production line.

The company had hoped that the revamped Model Y would drive sales in the second quarter. However, overall deliveries fell 13% year-on-year, contradicting Musk's claim in mid-May that sales "had improved."

Tesla Sales Decline

According to Musk himself, Europe is the company's weakest major market. Data from the European Automobile Manufacturers Association shows that despite overall market expansion, the number of new Tesla registrations in the region plummeted by more than a third from January to July. The pure electric vehicle sales across the European industry grew by 26%. Tesla's troubles continued in August, with significant sales declines in Germany, France, and Denmark.

Tesla's struggles have created opportunities for competitors like BYD. This Chinese automaker surpassed Tesla in pure electric vehicle sales in Europe for the first time in April, which analysts called a watershed moment. Some predict that BYD's global sales will surpass Tesla's for the year—despite BYD not yet entering Tesla's home market, the U.S.

Cox Automotive estimates that Tesla's car sales in the U.S. fell by 11% in the first half of the year. According to data from its subsidiary Kelley Blue Book, Tesla remains the best-selling electric vehicle brand in the U.S., but its market share in electric vehicle sales has shrunk from over 75% in 2022 to below 50% in 2024 In the world's largest electric vehicle market, China, according to data from the China Passenger Car Association, Tesla's Shanghai factory experienced a year-on-year decline in shipments (for domestic customers and exports) for seven out of the first eight months of 2025.

Decline in Tesla Shanghai Factory Vehicle Shipments

Tesla's Continuous Setbacks

Musk insists on a "less is more" strategy for Tesla's product line. For years, the company has only sold five models—Model S (launched in 2012), Model X (2015), Model 3 (2017), Model Y (2020), and Cybertruck (2023)—and not all models are sold globally.

In contrast, BYD offers many more models, most of which are cheaper than Tesla's best-selling Model Y and Model 3 sedans. BYD also announced in March the development of an electric vehicle battery system that can charge in five minutes, which could make the brand more competitive.

New entrants are threatening Tesla's position, especially in the already crowded Chinese electric vehicle market, where a prolonged price war has been ongoing.

The most notable newcomer is Xiaomi, which has ventured into car manufacturing. The company claims its second electric vehicle, YU7, received nearly 300,000 pre-orders within an hour of opening for reservations. Its price is about $35,000, cheaper than the Tesla Model Y.

Cars priced below $30,000 have long been seen as key to Tesla's further growth. However, the affordable vehicles that Musk has promised since the first "Roadmap" plan in 2006 have yet to materialize. In recent years, the company instead launched the expensive Cybertruck, whose sales have fallen far short of the CEO's expectations.

Although the electric vehicle manufacturer told investors in July that "the first vehicles of the more economical model" began production in June, with a goal of achieving mass production in the second half of the year, the plan is to prioritize assembling existing models in the third quarter before the expiration of the U.S. electric vehicle tax credit policy.

There is currently no information on the pricing of this low-cost vehicle. When asked about its appearance, Musk replied that it "is just a Model Y." Relying on a simplified, cheaper version of existing models may make it increasingly difficult for Tesla to keep up with competitors' more innovative designs. It remains unclear whether the company will soon make significant adjustments to its product line.

Involved in Political Storms

The most obvious signs that Musk's close relationship with Trump and the Republican Party is dragging down Tesla come from California. The Democratic stronghold saw a decline in Tesla registrations for all four quarters last year.

After the November U.S. elections, the rebound intensified, when Musk, as head of the Department of Efficiency, began streamlining federal agencies and cheering for far-right politicians in Europe Musk's political activities have sparked a "Boycott Tesla" movement, with organizers arranging protests at global showrooms and calling for a boycott of the company's products and its stock. The electric vehicle manufacturer is also dealing with incidents of vandalism and arson.

Musk acknowledged that his involvement with the Trump administration brought "backlash," but he also insisted that he opened doors for consumers on the political right, which could offset the sales losses Tesla incurred from the left-wing camp.

This has yet to be reflected in the company's quarterly data, and Musk's relationship with Trump soured after he fiercely criticized the tax and spending legislation the president was formulating. As the "brotherhood" days became a thing of the past, Republican lawmakers did not show mercy to Tesla when voting to eliminate the $7,500 electric vehicle purchase tax credit set to expire at the end of September.

This deadline could provide a temporary boost to Tesla, as American consumers may accelerate their electric vehicle purchases before the tax credit expires, but the upside may be limited by weak sales in Europe and China.

Trump's signature tax legislation also eliminated penalties for automakers that fail to meet federal fuel economy standards. This will weaken Tesla's revenue from selling regulatory credits (which help other automakers comply with emission rules). In certain quarters, revenue from these credits has been crucial for the company to remain profitable.

Tesla's carbon credit sales revenue will decline

Tesla's Path to Recovery

Tesla has expanded into India, opening its first showroom in Mumbai in mid-July. However, its launch in this emerging electric vehicle market has been lackluster—media reported in early September that it received just over 600 orders. Reflecting India's high tariffs on car imports, the entry-level Model Y is priced close to $70,000, which is beyond the reach of most drivers in the country.

To regain market share in China, Tesla is making changes to keep pace with competitors' technology-rich vehicles. It plans to launch an in-car voice assistant feature powered by local AI model DeepSeek and Doubao from ByteDance Ltd. It is also introducing a six-seat Model Y, starting at $47,200, comparable to competing models with three-row seating configurations. Deliveries of the Model Y L may begin in September.

In other regions, sources revealed that after the long-time confidant Omid Afshar's departure, Musk has taken over the oversight of sales in Europe and the U.S. Afshar's exit is the latest in a series of executive departures this year, including Milan Kovacic, the engineering head of Tesla's Optimus robot project, and David Liu, who was responsible for software for over a decade. It is reported that Troy Jones, Vice President of North American Sales, Service, and Delivery, has also left the company Musk's deeper involvement comes as analysts estimate that Tesla will be unable to surpass last year's sales of 1.79 million vehicles. This contrasts with the growth in the global market, where Bloomberg New Energy Finance predicts that sales of pure electric vehicles will grow by 19% by 2025.

Tesla's annual vehicle deliveries may decline again

Prospects for Autonomous Driving and Humanoid Robots

As Tesla's electric vehicle momentum slows, Musk has been promoting what he believes to be the company's true mission: autonomous vehicles and humanoid robots. He has stated that 80% of Tesla's value will ultimately come from Optimus. However, as Musk mentioned during the earnings call in April, both autonomous vehicles and bipedal robots are still some distance from beginning to "impact financial metrics."

Tesla's ambition is to establish a driverless ride-hailing network, initially using its consumer models, and then integrating a dedicated Cybercab without a steering wheel and pedals.

Predicting that Tesla vehicles should soon be able to drive autonomously about a decade later, the company launched its long-awaited robotaxi service in late June.

Tesla's debut was not spectacular, offering rides only in a specific area of Austin to a small group of enthusiasts. Videos of its multiple trips, which allegedly violated traffic regulations, drew scrutiny from federal safety regulators. In early September, the company began allowing the public to download its autonomous taxi app and join the waiting list for the service.

The challenge Tesla now faces is to scale up its robotaxi business to prove that its future indeed lies in autonomous driving rather than vehicle manufacturing