Tesla hit with stunning setback in battle for dominance with Chinese automaker — here are the details

A new leader in the electric vehicle market emerged at the start of 2026, as BYD pushed ahead of Tesla to become the world's largest EV automaker. 

What's happening?

According to The Guardian, BYD became the world's largest EV company thanks to surging sales in 2025. 

The Chinese company sold 2.26 million battery electric cars globally during the year, while Tesla sold 1.63 million. In 2025, Tesla's sales dropped by 9% compared to the previous 12 months.

Tesla's struggling sales numbers may be attributed to the removal of the federal EV tax credit, per The Guardian. Some analysts also said sales dropped after Tesla CEO Elon Musk became involved in politics in the United States. 

Meanwhile, BYD's EV sales jumped by 28% in 2025. The Guardian reported that the automaker has produced more cars than Tesla overall, hybrids included. 

Why are falling EV sales concerning?

EV sales accounted for about 12% of the U.S. market in the third quarter of 2025 — a new sales record, according to Car and Driver. However, those numbers coincided with the end of the federal tax credit. 

According to InsideEVs, 230,000 EVs were sold in Q4 in the U.S., which was a massive 46% drop from the previous quarter. Additionally, overall EV sales in the U.S. were projected to hit 1.275 million in 2025. That number is down from 2024, making it the first year-over-year decline in six years. 

Declining EV sales could take a toll on the environment down the line. The vehicles produce zero tailpipe emissions, unlike their gas counterparts. More EVs on the road means less planet-warming pollution in the atmosphere, as well as less particulate matter that increases the risk of respiratory and cardiovascular diseases. 

What can Tesla do to improve sales?

Making your next car an EV can save you hundreds of dollars on gas and maintenance. Although the United States' federal tax credit expired, many states offer incentives for EVs. However, some states are operating on a first-come, first-served basis due to limited funds. 

As for Tesla, the EV automaker introduced cheaper versions of the Model 3 and Model Y late last year to ramp up sales. 

Per Business Insider, other automakers are expected to introduce more affordable EVs in 2026 amid slower sales.

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