Tesla Sales Drop 17% in California

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But the Tesla Model Y is still the #1 best seller in the California auto market — by far. And that could be concerning.

I don’t think it’s at all controversial to say that Tesla’s success was built from the hands of Californians. Tesla never would have reached the scale it has reached, or even become profitable at all, if it didn’t have years of support from Californian buyers, Californian laws (strong incentives for EVs as well as carbon credits Tesla was paid by other automakers to make up for their lack of EV sales), and Californian workers of course. For a long time, Tesla’s only car factory was in Fremont, California. First deliveries of new models were in California. Model launches and other events were in California. And there’s a strong chance no other market in the world would have watered the seed of Tesla as much as or as well as California did.

Recall that the Toyota Prius used to be the green vehicle of choice of rich and famous Hollywood celebrities, and many others in California. Tesla’s vehicles have usurped that position, and much more. You can’t even find the Prius in the top 5 of its vehicle class, while the Tesla Model Y is far and away the best selling automobile in California. In fact, it had almost twice as many sales as the #2 Toyota RAV4!

However, the tale of the Prius may be a wise one for Tesla to consider, even if the peak of its success was on a much lower level.

Cars are status symbols, identity markers, the crown jewels of many families, political statements, and much more. With millions of Tesla Model 3 and Model Y vehicles covering the roads of California, they are no longer “special,” eye-grabbing, unique vehicles. Getting a Tesla because its cool may be going out of fashion. On top of the “mass-market effect,” Tesla is now strongly linked to the Republican Party and even Donald Trump, via corporate head Elon Musk, the most famous CEO in the world. Approximately 47% of registered voters in California are Democrats, while about 24% are Republicans. Not many independents are fans of Donald Trump, and Democrats mostly see him in … well, basically the worst light possible. On top of that, at the end of his presidency, he tried to ignore the results of an election, stage a coup, and stimulate an insurrection. Elon Musk shifting over to “the dark side” is sure to push away a lot of Democrats, which means a lot of Californians, and it was probably already doing so to a significant degree. It seems that Tesla’s 24% drop in sales in Q2 compared to Q2 2023 represents that to some degree. But the thing is: that was before Musk endorsed Trump and said he’d spend hundreds of millions of dollars to help get him elected.

Elon Musk seems to think that Tesla vehicles are so much better than other vehicles that people will buy them no matter what he does. However, the EV market has improved by leaps and bounds in recent years. Whereas there used to be no great Tesla alternatives, there are now at least a dozen in the electric vehicle industry. Even if Musk was a saint and did nothing to push away buyers (especially in Tesla’s birth state of California), Tesla was going to face the challenge of a maturing market taking more and more of its pie.

In the 4th quarter of 2023, Tesla sales were down 9.8% in California. In the 1st quarter of this year, they were down 7.8%. In the 2nd quarter, they were down 24.1%. Overall, in the first half of 2024, Tesla sales were down 17% in California.

Recall that Tesla’s supposed to be seeing 50% annual growth, on average, through 2030. That was Elon Musk’s expectation even last year.

There are other reasons why Tesla sales could be dropping sharply in California. Below, I’m going to list the big ones that come to mind for me. Let us know in the comments of any others you think of.

1. Multiple Teslas on every single corner make them seem more mundane and less special, so is hurting some of their original appeal.
2. Political ramifications from Elon Musk going fully into the far right-wing political arena.
3. There are only so many potential Tesla buyers out there, and more and more of them have Teslas. (“The Tesla Model 3 and Model Y are substantially the same vehicles they were five years ago, and buyers interested in those cars might represent a finite share of the market—and they might already own a Tesla. Without new models to entice customers, buyers look elsewhere for new cars,” Fortune writes.)
4. Removing signal and gear shift stalks is just turning customers off.
5. Hits to resale value following deep Tesla price cuts are making people wary of buying a new Tesla.
6. A large number of used Tesla vehicles on the market (especially thanks to Hertz) is leading to less demand for new Tesla vehicles.
7. Consumers are waiting for Tesla’s “next big thing” and don’t want to make a big purchase decision until they find out what that is.

Of course, we have to emphasize that Tesla sales are still strong! Tesla sales may have gone from 64.6% of the California EV market to 53.4%, but it’s still got more than half of the EV market! The Model Y still got 69,810 registrations in The Golden State in Q2, almost double the 36,160 registrations of the #2 Toyota RAV4.

However, circling back to my note at the top about why even the good numbers could be concerning — the point is that these numbers are a bit too good to be sustainable. Can Tesla really retain more than 50% of the California EV market. That seems highly unlikely. Can Tesla continue to sell so many Model Y (and Model 3) vehicles quarter after quarter? Or is the company just going to find itself facing smaller “natural limits” to its sales potential as time moves on? I mean, can we really expect the Model Y to be so far ahead of the pack forever?

I take the California numbers to be a warning. However, we’ll see. … Everything could turn around from here.

Featured image courtesy of CNCDA.

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