Tesla's California EV Sales Slide 18.3% in 7th Consecutive Quarter as Hybrids, Rivals Gain Ground

Tesla Inc.’s electric vehicle sales in California, the largest U.S. market for EVs, have declined for seven consecutive quarters, according to the California New Car Dealers Association Q2 Auto Outlook. The report highlights a stark contrast with traditional automakers like Toyota and Honda, which have seen significant gains in the state. Tesla’s new vehicle registrations fell 18.3% year-to-date, while Honda and Toyota recorded increases of 9.9% and 8.5%, respectively. Ford and Chevrolet outperformed Tesla as well, with registration growth of 10.5% and 21%, marking a notable shift in California’s automotive landscape.

The Tesla Model 3 remains the top-selling passenger car in California with a 12.6% market share, but the Toyota Camry and Honda Civic are rapidly closing the gap at 12.2% and 11.5%. This trend underscores a broader shift in consumer preferences toward hybrids and plug-in hybrids, even as California has historically been a stronghold for zero-emission vehicles (ZEVs). ZEV registrations in the state now account for 19.5% of all sales, compared to 7.8% nationally. However, ZEV share of total alternative-power vehicle sales in California dropped to 45.3% in 2024 from 53.4% the previous year, signaling a growing appetite for hybrid technology.

Competitors like Chevrolet have capitalized on this shift, with ZEV sales surging 80.5%. Tesla’s Cybertruck, while popular, ranks 25th among alternative-power vehicles in the state, trailing behind the Model Y and Model 3. The decline raises questions about Tesla’s ability to maintain its dominance in a market that once defined the EV revolution. Analysts note that the phasing out of federal tax incentives—$7,500 for new ZEVs and $4,000 for used models—by September 2025 could further accelerate the industry’s pivot toward hybrids, particularly as automakers face rising costs from tariffs and production challenges.

Policy uncertainty adds another layer of complexity. California’s Advanced Clean Cars II regulation, which mandates a transition to ZEVs by 2035, is under legal scrutiny after a recent resolution revoked the state’s authority to enforce the mandate. Governor Gavin Newsom and Attorney General Rob Bonta have sued to defend the rule, but its future remains unresolved. The outcome of this legal battle could reshape the competitive dynamics in a market where regulatory support has long been a cornerstone of EV adoption. Meanwhile, Tesla’s public alignment with Donald Trump and the Department of Government Efficiency (DOGE) has drawn protests, though the company denies directly criticizing Trump’s policies. These factors highlight how geopolitical and corporate leadership dynamics are increasingly entangled with market performance.

Industry-wide, automakers are grappling with the dual pressures of regulatory shifts and economic headwinds. General Motors, for instance, reported a profit decline in Q2 despite beating earnings expectations, citing costs from import tariffs. Tesla’s upcoming earnings report, scheduled for Wednesday, will be closely watched to determine whether recent initiatives—such as the Hollywood Tesla Diner, a 24-hour supercharging station with food service—can reverse its California sales slump. For now, the data underscores a pivotal moment: even in a market where EV adoption has been a cultural norm, traditional automakers are leveraging hybrid technology, consumer pragmatism, and policy evolution to reclaim market share. As subsidies wane and regulations evolve, the auto industry’s ability to adapt will define its next phase of growth.