Europe hits the brakes on Tesla as Chinese rivals and hybrids surge

Tesla’s grip on the European electric vehicle (EV) market continues to weaken, with its sales in the region falling sharply in May, even as the broader auto market staged a modest recovery driven by hybrids and more affordable electric options available. According to data from the European Automobile Manufacturers’ Association (ACEA), Tesla’s new registrations in the EU, UK, and EFTA countries dropped 27.9 per cent year-on-year in May to just 13,863 vehicles. This marks the fifth consecutive monthly decline for the American EV company in one of its most important overseas markets.

Year-to-date, Tesla’s sales in Europe are down a steep 37.1 per cent compared to 2024. This downturn comes against a backdrop of improving overall auto sales in the region. New-car registrations rose 1.9 per cent in May from a year earlier, reaching 1.11 million units. The growth was driven by strong performances in key markets like Germany, Spain, and the UK, even as France dragged on the total. But Tesla’s decline stands in stark contrast to the broader EV segment, which remains one of the fastest-growing categories.

Rivals gain, Tesla falls behind

Battery-electric vehicle (BEV) sales in Europe surged 27.2 per cent year-on-year in May to nearly 193,500 units, raising their share to 17 per cent of the overall market. Hybrids, particularly plug-in variants, also posted strong gains. Plug-in hybrid sales soared by 46 per cent to over 100,000 units, reflecting growing consumer preference for alternatives that offer electric range without full reliance on charging infrastructure.

Chinese automakers, led by BYD and SAIC’s MG brand, are rapidly filling the space left by Tesla’s shrinking footprint. Chinese brands more than doubled their share of the EU market to 5.9 per cent in May from 2.9 per cent a year earlier, registering over 65,800 vehicles across 28 European markets, according to JATO Dynamics.

The rise of Chinese players has come despite steep EU tariffs imposed on Chinese-made electric vehicles. Companies like BYD have swiftly responded to the tariffs by pivoting toward hybrids and gasoline-powered models, which are exempt from the tariffs. The result, BYD electric vehicles outsold Tesla in Europe in April and nearly matched it in May.

Tesla’s challenges are compounded by an ageing product lineup. Its flagship Model Y and Model 3 face growing competition from newer, cheaper alternatives with more up-to-date technology. European carmakers such as Volkswagen, Renault, and Stellantis are also ramping up their EV offerings, further squeezing Tesla’s market share.

Tesla’s European market share has dropped from 1.8 per cent to just 1.2 per cent, underscoring the scale of its retreat. In Germany, Europe’s largest car market, Tesla sales were down more than one-third compared to the same month last year, despite an overall rise in EV sales. The gap is especially stark when compared to BYD, whose sales in Germany have increased ninefold.

Price, politics, and production challenges

Several factors are contributing to Tesla’s decline in Europe. Price remains a major hurdle. While Tesla has adjusted pricing several times, its vehicles still sit above the entry-level EVs and hybrids now flooding the market. Moreover, the cost advantage of EVs is diluted in countries where charging infrastructure remains underdeveloped or electricity costs are high, pushing buyers toward hybrids.

Consumer perception is another issue. Tesla CEO Elon Musk’s vocal political affiliations, particularly his public support for far-right parties in Germany, France, and the UK, have drawn backlash from European consumers. The brand has faced increasing resistance, with reports of buyer boycotts and a souring public image, especially in progressive urban markets that were once key Tesla strongholds.

Production location also matters. Chinese competitors are moving quickly to sidestep tariffs by building factories in Europe. BYD, for example, plans to begin manufacturing vehicles in Hungary and Turkey by 2026, which will exempt them from EU import duties and likely lead to even lower retail prices. Tesla, in contrast, continues to rely heavily on its Shanghai Gigafactory for European supply, subjecting it to additional tariffs on Chinese-made vehicles.

EU market shifts, Tesla’s path forward

While Tesla’s position weakens, the European auto market is undergoing a transformation. Sales of petrol and diesel cars fell 19.5 per cent and 27.6 per cent, respectively, in May. The momentum is clearly with electrified vehicles, both pure EVs and hybrids, which are benefiting from consumer incentives, regulatory pressure, and greater model diversity.

Volkswagen Group, which includes Audi, Skoda, and Seat, remains dominant with a 28 per cent EU market share. Stellantis, despite recent struggles, holds 16 per cent. Tesla, by contrast, is becoming a niche player. Legacy brands are also benefiting from updated models and aggressive pricing, areas where Tesla’s innovation cadence has slowed.

Tesla’s focus appears to be shifting toward future technology bets like autonomous driving and robotaxi services, as seen in its recent launch of a fully driverless service in Austin, Texas. But for now, in Europe, Tesla’s decline is stark amid regulatory complexity, political optics, and fierce competition.