Tesla Is Still Dominant, But Its U.S. Market Share Is Eroding as Cheaper EVs Arrive

Tesla is still the top-selling electric vehicle brand in the U.S., but its dominance is eroding as rivals offer a growing number of more affordable models, according to a report by S&P Global Mobility.

The Numbers Tell the Story

Tesla's market share of new registered electric vehicles in the U.S. stood at 65% through the third quarter of 2022, down from 71% the prior year and 79% in 2020. S&P forecasts Tesla's EV market share will decline to less than 20% by 2025, as the number of EV models available is expected to grow from 48 to 159 by then. A drop was expected — but the pace of decline is notable.

Of the 10.22 million vehicles registered in the U.S. through Q3 2022, roughly 525,000 (5.1%) were all-electric models — up from 334,000 (2.8%) in the same period the prior year. Nearly 340,000 of those EVs were Teslas, with the remaining registrations split unevenly among 46 other nameplates.

Where Tesla Is Losing Ground

S&P reported that Tesla is slowly losing its hold on the U.S. EV market to fully electric models priced below $50,000 — a segment where Tesla doesn't yet truly compete. Tesla's entry-level Model 3 starts at around $48,200 before options. Rivals filling this gap include the Ford Mustang Mach-E (the only non-Tesla in the top 5 EV registrations), Chevrolet Bolt, Hyundai Ioniq 5, Kia EV6, Volkswagen ID.4, and Nissan Leaf.

S&P's assessment: "Tesla's position is changing as new, more affordable options arrive, offering equal or better technology and production build. Given that consumer choice and interest in EVs are growing, Tesla's ability to retain a dominant market share will be challenged going forward."

Tesla's Response

Elon Musk acknowledged during Tesla's Q3 earnings call that the company is finally developing a new, more affordable model — first teased in 2020. He described it as something "smaller" that will "exceed the production of all our other vehicles combined." Tesla is also reportedly developing a revamped Model 3 aimed at cutting production costs and simplifying the interior.

Notably, Tesla's unit sales are still expected to increase in absolute terms even as market share declines — a sign that the overall EV pie is growing fast enough to support more winners. Transportation currently accounts for 25% of global carbon emissions from human activity, giving the entire sector enormous room to grow.

Originally published by CNBC. Authors: Michael Wayland & Lora Kolodny.