Tesla's falling sales are a sign that its grip on the electric vehicle market is loosening

Tesla appeared to have lost control of the market it effectively created after reporting a stunning drop in quarterly sales on Tuesday, raising new questions about Elon Musk's leadership of the company.

The sales decline caught investors by surprise as rivals such as China's BYD and South Korea's Kia and Hyundai reported increases in electric vehicle sales, suggesting that slowing overall demand for battery-powered models was not the only explanation of Tesla's problems.

Tesla pioneered the electric vehicle market with the Model 3 sedan and Model Y sport-utility vehicle, proving that battery-powered cars could be attractive, practical and profitable. The cars have revolutionized the automotive industry and forced established automakers to develop their own electric models.

But the market is evolving in ways that may not favor Tesla. Unlike the early adopters who fueled Tesla's rise, mainstream buyers may be put off by the vehicles' unconventional design, including minimalist interiors and lack of buttons and switches. Almost all functions of Tesla vehicles are controlled by a large screen on the dashboard.

The system “makes the task of adjusting almost anything inside the vehicle completely distracting while driving down the road,” Consumer Reports wrote Tuesday in a review of a new version of the Model 3.

Tesla, which sells cars online and doesn't have many showrooms, is often the target of complaints about poor service. This could provide an advantage to established automakers, such as Ford Motor and General Motors, which have extensive dealer networks and are ramping up production of electric vehicles.

Tesla seems unable to respond to these challenges. It has been slow to follow up its initial success with new models, and Musk seems disengaged. He did not react Tuesday to sales figures on X, the social media platform he owns and posts prolifically on. Instead, he fired digs at Walt Disney Company executives who he accuses of being “woke.” Such remarks have made him a hero to conservatives, but could push liberals, who are more likely to buy electric cars, away from Tesla.

Tesla said it delivered 387,000 cars worldwide in the first quarter, down 8.5% from 423,000 in the same period last year. This was the first time Tesla's quarterly sales fell on a year-over-year basis since a modest decline at the start of the pandemic in 2020. The sales figures were also significantly below estimates from Wall Street analysts who had expected a modest increase .

“Tesla can’t stand still,” Ben Rose, president of Battle Road Research, said in an email. “Chinese electric vehicles are already gaining traction in Europe, and it is unclear how long they will be banned from entering the United States.”

More affordable cars would help Tesla attract a broader spectrum of buyers, Rose said.

To be sure, some of the sales decline may have reflected production problems beyond the company's control, including a fire at a Tesla factory near Berlin that was the result of arson.

And the company's cars still have many fans. While reviewing the Model 3's controls, Consumer Reports said the latest version offered a better ride than its predecessor and had better handling.

But investors are clearly alarmed. Tesla shares have fallen more than 30% this year — including a 5% drop on Tuesday — on concerns that the company has lost momentum.

In China, Tesla takes on BYD and dozens of other rivals with ambitions to expand worldwide. In Europe, established automakers such as Volkswagen and BMW have introduced more attractive battery-powered models. And in the United States, electric car sales aren't growing as fast as they did a year ago, and many buyers are instead opting for hybrid models that pair a gasoline engine with batteries and electric motors.

Tesla's rivals continued to report sales increases. BYD said Tuesday it sold about 300,000 electric vehicles, up 13% from a year earlier. The company also sold 324,000 plug-in hybrid vehicles in the first quarter, up 15%.

BYD and other Chinese automakers have rapidly introduced new models, often undercutting Tesla on price. These companies are also increasingly exporting cars to Europe, Southeast Asia and Latin America.

South Korea-based Kia said Tuesday that its U.S. electric vehicle sales more than doubled in the first three months of the year compared with a year earlier, after introducing a new large SUV, the EV9 . Kia's sister company Hyundai said it sold more than 10,000 electric vehicles in the first quarter in the United States, a 75% increase.

Toyota, the world's largest automaker, doesn't sell many fully electric vehicles. But the company said U.S. sales of electrified vehicles, a category largely made up of hybrids, under the Toyota and Lexus brands rose 74% in the first quarter.

Tesla pioneered mass-market electric cars, but its lineup is aging. The company's only new model from 2020 is the Cybertruck, a futuristic pickup that went on sale in limited numbers last year. The least expensive version that Tesla says it can deliver this year starts at around $80,000, making it unaffordable for most car buyers.

Rivian, whose R1 pickup competes with the Cybertruck, said its sales, including those of the truck and its other two models, rose 70% in the quarter to 13,600 vehicles.

Tesla is working on an electric car that would cost around $25,000, but the model isn't expected to go on sale in large numbers until 2026. Meanwhile, Tesla remains dependent on the Model Y and Model 3 for most its sales.

The company has repeatedly cut prices, but analysts say the strategy has chipped away at profits without doing enough to spur sales. The company recently raised prices slightly on some cars in the United States and China. The Model Y starts at nearly $45,000 before federal and state tax breaks, after a $1,000 increase announced this week.

Quarterly sales data shows that Tesla managers “need a real sales strategy and can't rely on price cutting alone,” Gary Black, managing partner of Future Fund, an investment firm, posted on X.

Musk, Tesla's chief executive, has not given a clear indication of how the company plans to regain momentum. At the same time, his polarizing statements and endorsement of right-wing conspiracy theories have alienated many of the left-wing customers who are most likely to buy electric cars.

Los Angeles resident Raphaelle Cassens gave up her rented Tesla Model Y last year and replaced it with a rented electric BMW i4. Mr. Musk was one of the reasons she changed, she said.

“Honestly, I don't like him at all as an individual,” said Ms. Cassens, who is a registered Democrat but describes herself as nonpartisan. She also said she received poor service from the company. “The company's attitude definitely reflects the owner,” Ms. Cassens added.

At least one other major automaker is struggling with electric vehicle sales. GM reported Tuesday that its U.S. sales for the first quarter fell 1.5%, largely because deliveries of battery-powered cars fell by about a fifth to about 16,000 vehicles.

The decline in sales of battery-powered vehicles was the result of a sharp decline in sales of the Chevrolet Bolt, which GM stopped producing at the end of 2023. Sales of other electric models using GM's latest battery technology are increased but not enough to make up for the loss of the Bolt, which was one of the most affordable electric cars in the United States.

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