Tesla’s (TSLA) Q4 2025 deliveries plunged 16% year-over-year (YoY) and fell short of the already toned-down forecast that analysts had set for the Elon Musk-run company. In the full year, it delivered 1.64 million vehicles, which was 8.6% lower than the previous year.
The company’s deliveries have fallen on an annual basis for two consecutive years, and if not for the sales bump in Q3 ahead of the expiration of the $7,500 EV tax credit, last year’s numbers could have looked even uglier. Notably, BYD (BYDDY)—which is also battling a slowdown in China but is seeing strong sales in global markets—overtook Tesla to become the world’s largest seller of battery electric vehicles (BEVs) last year.
The Chinese company—whose very possibility of being a competitor Musk mocked in 2011—was already selling a lot more cars than Tesla and has now grabbed the crown of the biggest seller of BEVs. Looking at the wide gulf between the two companies’ 2025 EV deliveries and Tesla’s sales woes, BYD looks set to hold the title for at least the next few years.
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Meanwhile, Tesla has been trying to position itself as an artificial intelligence (AI) company as it doubles down on “physical AI” products like the Optimus humanoid and autonomous driving. The view is propagated by many Tesla bulls, and even I would attest to the fact that TSLA is not merely an EV company. Markets also seem to believe so, as there is no other reasoning behind Tesla’s mammoth $1.4 trillion market capitalization.
However, I am not in the camp that believes that Tesla’s deliveries don’t matter. If that really was the case, then the quarterly delivery report wouldn’t have been so eagerly awaited and tracked, and the stock wouldn’t have fallen on Friday after missing Q4 delivery estimates. Furthermore, in an unusual move, Tesla published Q4 delivery estimates by select brokerages on its website ahead of releasing its actual numbers. It was the first time I can remember when Tesla published consensus delivery estimates and was an apparent bid to anchor expectations as the company prepares for a “few rough quarters,” by Musk’s assertion.
It is also important to examine how Tesla lost its EV leadership. While we can blame the expiration of the EV tax credit for the slump in U.S. EV sales in Q4, things haven’t been pleasant for Tesla for the last many quarters. Rivals have increasingly grabbed market share in the U.S. As for the global picture, Tesla is fast losing out to Chinese rivals like BYD and XPeng Motors (XPEV), which are gaining ground outside of China.
With their competitively priced cars, Chinese EV companies have given Western automakers a run for their money. Foreign automakers have long struggled in China as homegrown companies have raced ahead, and a similar dynamic is being played out in international markets.
To borrow a previous phrase from Musk, Chinese companies could even come close to “demolishing” Tesla’s U.S. volumes if not for the 100% tariff that practically closes the U.S. market for EV imports from China.
For me, Tesla giving away its EV leadership to a Chinese company is not something that can be brushed under the rug. While the bulk of Tesla’s valuation indeed comes from AI products like robotaxis and Optimus, along with the company’s progress in autonomous driving, it is set to face tough competition from Chinese companies in these areas, at least in global markets.
BYD’s performance in Europe is a case in point here. Despite having a much lower vintage than Tesla in Europe and facing an additional headwind in the form of E.U. tariffs on EV imports from China, the company sold more cars than Tesla in some months last year.
When it comes to robotics, Chinese companies are considered either on par with or ahead of U.S. rivals. For instance, XPeng Motors not only has one of the most advanced self-driving capabilities but also unveiled its “most human-like” IRON humanoid at the AI Day last year.
As Andreas Brauchle, partner at consultancy Horváth, told CNBC by email, “China currently leads the United States in the early commercialization of humanoid robots.” Brauchle, however, added, “While both countries are expected to build similarly large markets over time, China is scaling more rapidly in this initial phase.”
Overall, Tesla’s underwhelming deliveries amid rising competition raise an important question: Would the company win the physical AI race? While the company might still lead the U.S. markets, on a global level, it is facing ever-rising competition from Chinese companies.
While Musk has touted big numbers for Optimus and robotaxi, the company has a long history of overpromising and underdelivering. For instance, the company quietly removed the reference to 20 million annual EV units by 2030 from its annual report while virtually withdrawing the 50% annual CAGR forecast. Would Tesla need to mellow down the ambitious numbers it has projected for AI products? We’ll have to wait and see, but there is real execution risk as the company prepares for the next leg of its growth.
On the date of publication, Mohit Oberoi had a position in: TSLA, XPEV. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
