Elon Musk Under Pressure: Tesla Faces Biggest U.S. Market Share Drop in 8 Years

Tesla has just suffered its steepest defeat in the U.S. electric vehicle (EV) market in nearly a decade. In August 2025, the company’s share of the American EV market plunged to 38%, dropping below 40% for the first time since 2017. Back then, Tesla was still fine-tuning the Model 3. Today, it is being pushed aside by cheaper, newer, and more competitive alternatives, while Elon Musk is chasing robots instead of focusing on cars. With Tesla’s product lineup stagnating, rivals are throwing everything they have at consumers – and it’s working.

Market Share in Freefall Data from Cox shows Tesla lost more than 10 percentage points of market share in just two months, falling from 48.7% in June to 42% in July, and then sinking even lower in August. This marks Tesla’s sharpest drop since March 2021, when Ford entered the EV race with the Mustang Mach-E. For comparison, overall EV sales in July surged 24% to 128,268 units. Tesla’s own sales rose 7% to 53,816 vehicles, but that growth was not enough to keep up. In August, Tesla’s sales growth slowed to just 3.1%, while the rest of the market accelerated by 14%.

Legacy Automakers Seize the Moment One of the key reasons for Tesla’s decline is the flood of new EV models from traditional automakers. Hyundai, Honda, Kia, and Toyota are offering aggressive deals, better incentives than Tesla, and are quickly capturing market share. Stephanie Valdez Streaty, director of industry insights at Cox, noted:

“Traditional automakers are capitalizing on this sense of urgency and offering compelling deals on their vehicles – and it’s working.”

She added: “Tesla is presenting itself as a robotics and AI company. But when you’re an automaker and you don’t have new products, your market share starts to erode.” Tesla hasn’t launched a new mass-market vehicle since 2023, when it introduced the Cybertruck. That launch came and went without the hype of the Model 3 or Model Y. Even the recent refresh of the Model Y – once the world’s best-selling SUV – failed to live up to expectations. Tesla now faces what could be its second consecutive year of declining sales. Instead of promising more affordable models, Elon Musk has shifted his focus toward humanoid robots and robotaxis – a high-stakes gamble. Tesla’s board recently proposed a $1 trillion compensation package for Musk, tied to Tesla’s market capitalization reaching $8.5 trillion over the next decade. It’s an all-or-nothing bet that investors are watching closely, especially now that Tesla’s core revenue engine is losing momentum.

Federal Tax Credit Deadline Fuels Competition Currently, U.S. buyers are rushing to take advantage of a $7,500 federal tax credit that expires this month. The surge boosted sales across the industry in July and August – but Tesla lagged behind, while others moved faster. Even Tesla’s frequent price cuts are losing effectiveness. While steep discounts have helped sustain sales, they also erode profits and frustrate shareholders. Tesla’s brand image has also taken hits. Musk’s political ties cast shadows over the company: last year, he helped Donald Trump return to the White House, but by May 2025, Musk had split with Trump and exited the administration entirely. The fallout, coupled with ongoing criticism of Musk’s online behavior, has hurt Tesla’s appeal in more liberal-leaning markets.

Buyers Shift to Competitors Meanwhile, customers are walking into showrooms and leaving with keys to Tesla’s competitors. Topojoy Biswas, a 41-year-old software worker in San Francisco, originally planned to buy a Toyota Camry. But after seeing EV offers from other automakers, he switched course. Volkswagen dealers offered zero down payment, zero interest, and free fast charging. Biswas said he walked away with a Volkswagen ID.4 instead of a Tesla Model Y:

“It just felt like the better deal,” he explained. Volkswagen sales in July skyrocketed by more than 450% compared to June – a striking example of how fast rivals are capitalizing while Tesla falters.

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