Tesla’s dominance of electric vehicles is waning as cheaper cars hit the market

Tesla It’s still the best-selling electric car brand in the U.S., but its lead is waning as rivals offer increasingly more affordable models, according to a report released Tuesday by S&P Global Mobility.

The data firm found that Tesla’s market share of newly registered electric vehicles in the US was 65% during the third quarter, down from 71% last year and 79% in 2020. S&P predicts Tesla’s EV market share will fall below 20%. By 2025, the number of EV models is expected to increase from 48 today to 159 by then.

Tesla’s US market share was expected to decline, but the pace of the decline could worry investors in Elon Musk’s auto and energy company. Tesla shares closed down nearly a point to $180 on Tuesday as Musk turned his attention to overhauling Twitter, the social media company he recently bought. Tesla’s stock has been down for almost half a year to date.

S&P reported that Tesla is slowly losing ground to all-electric models available in the sub-$50,000 price range in the US EV market, where “Tesla is not yet truly competitive.” Tesla’s entry-level Model 3 starts at about $48,200 with shipping, but the vehicles typically retail for more with options.

“Tesla’s position is shifting as new, more cost-effective options emerge that offer equal or better technology and manufacturing,” S&P said in the report. “Given consumer choice and increased consumer interest in EVs, Tesla’s ability to maintain its dominant market share will continue to be challenged.”

The new information follows a Reuters report on Monday that Tesla is developing an updated version of the entry-level Model 3 aimed at cutting production costs and reducing components and complexity in the interior.

During the company’s third-quarter earnings call in October, Musk said Tesla is working on a new, more affordable model that it will eventually sell for the first time in 2020.

“We don’t want to talk about exact dates, but that’s the main focus of our new vehicle development team,” he said, adding that Tesla has completed “engineering for the Cybertruck and the Semi.”

He described the future car as something “smaller” that would “outpace the production of all our other cars.”

Stephanie Brinley, associate director of AutoIntelligence for S&P Global Mobility, noted that Tesla’s unit sales are expected to increase in the coming years despite the decline in market share.

Tesla’s current lead in EVs is over a relatively insignificant market. Despite the amount of focus on electric vehicles, sales of fully electric and plug-in hybrid electric vehicles, including electric motors and internal combustion engines, remain small.

Of the 10.22 million vehicles registered in the U.S. during the third quarter, about 525,000, or 5.1%, were fully electric models. That’s up from 334,000, or 2.8%, in the third quarter of 2021, according to S&P.

According to S&P, the majority of electric vehicles registered through September — or about 340,000 — were Teslas. The remaining cars were very unevenly split between 46 other nameplates.

But Tesla’s market success and government incentives have forced traditional automakers to push into the growing EV segment.

The Ford Mustang Mach-E, which ranks third in EV registrations, is the only non-Tesla car in the top five, S&P said. Those electric cars were followed by Chevrolet Bolt and Bolt EUV, Hyundai Ioniq 5, Kia EV6, Volkswagen ID.4 and Nissan Leaf.

S&P noted that the growth in electric vehicles is mainly driven by current owners of Toyota and Honda vehicles. Both automakers are known for their fuel-efficient cars, but have been slow to transition to all-electric models.

To help curb carbon and other emissions from traditional gas-powered vehicles, several states and the federal government are encouraging the transition to fully electric vehicles with incentives such as tax breaks.

The non-profit International Council for Clean Transportation estimates that transportation accounts for 25% of global human-caused carbon emissions.

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