As the electric vehicle (EV) market in Europe experiences unprecedented growth driven by favorable policies and technological advancements, Tesla finds itself grappling with an alarming decline in its market presence. In January, Tesla registered only 9,945 new vehicles across Europe, a staggering drop of 45% compared to the same month the previous year, where it had recorded 18,161 registrations. This figure is even eclipsed by the sales of the Volkswagen ID.3 alone in Germany, marking a critical moment of concern for the American automaker. The stark contrast is particularly evident amid an overall surge of 37% in EV sales across Europe during the same period, with the German market seeing an increase of 42% and the UK witnessing an impressive rise of 51%.

The crisis is especially pronounced in Tesla’s core market, Germany, where the company’s sales hit a drastic low of just 1,277 units, the lowest since July 2021. In France, the situation is even bleaker, with sales plummeting by 63% year-on-year, representing the worst performance since August 2022. The aftermath of these disappointing figures has been swift in the capital markets; Tesla’s stock price fell for three consecutive days following the reports, losing 5.8% of its value and shedding over $120 billion in market capitalization.

The roots of this turmoil can be traced to a confluence of factors. At the forefront is Tesla's self-imposed limitations on production capacity. The Berlin Gigafactory, which began revamping its Model Y production line in November 2024, witnessed a drastic reduction in monthly output from 32,000 vehicles to 18,000. Although the company asserted that the upgrades would enhance production efficiency by 25%, the transition period has led to delivery delays that have unsettled the dealership network. A Tesla dealer from Munich disclosed, "We have a backlog of 2,300 orders, and our customer attrition rate is rising by 12% every month."

Elon Musk’s political controversies have been the final straw exacerbating Tesla’s downfall. His recent remarks exhibiting “far-right tendencies” in the European Parliament have seriously tarnished the company’s brand image. According to Ipsos polling data, Tesla’s brand favorability plummeted by 17 percentage points in left-leaning countries like France and Spain.

Compounding the company's woes is an intensified competition from rivals who are increasing their pressure. Volkswagen, through its “Electric Offensive 2025” initiative, has slashed the starting price of its ID. series vehicles to €28,000, launching a direct pricing war with the Model 3. Meanwhile, Groupe Renault introduced the long-range Megane E-Tech, now boasting a range of up to 550 kilometers at a price 12% lower than that of a similarly equipped Model Y. Additionally, the Chinese automaker BYD has claimed an 18% share in the Norwegian market with locally produced models such as the Han EV. Reports indicate that Tesla's market share in Europe has shrank from 21% in 2023 to a mere 15%.

In response to these challenges, Tesla is adopting a multifaceted strategic realignment aimed at reinforcing its position as a leader in the global electric vehicle landscape. In terms of production, the Berlin factory is rapidly completing its production line upgrades, targeting a monthly output restoration to 25,000 units by March, marking a 67% increase compared to the transitional phase. Simultaneously, Tesla is advancing the establishment of a battery factory in Hungary, projected to come online by 2026, aimed at building a localized supply chain within Europe. On the market front, the company has launched the “European Loyalty Program”, offering €8,000 in subsidies for existing owners looking to trade up to a Model 3 or Model Y. Coupled with France’s green tax incentives, this brings the base price of the Model Y down to around €35,000, thereby appealing to the mainstream family vehicle budget. In terms of technology, the new Model Y, equipped with the 4680 battery pack, is set to enter production this summer; its advances in cell design and dry electrode technology are expected to enhance range by 30%, while integrated body casting techniques will lower production costs by 18%. Together, these strategies create a closed-loop system of “capacity assurance - market penetration - technological breakthrough” that is designed to help Tesla weather the electrification push from traditional automakers in the European market while also building competitive advantages for global expansion.

However, industry analysts are skeptical regarding the impact of these measures. Experts from McKinsey's automotive division emphasize that Tesla must strike a balance between political sensitivity and technological edge. The uniqueness of the European market dictates that sheer product strength alone is insufficient for ensuring success; cultural alignment and policy compatibility are also crucial. Data reveals that while orders for the new Model Y have exceeded 150,000, consumer sentiment remains cautious, leading to a 22% decline in order conversion rates year-on-year for the first quarter of 2025.

The escalating geopolitical risks are reshaping the landscape of electric vehicles in Europe. The gradual implementation of the EU carbon tariff policy places additional carbon emission costs on Tesla’s Berlin factory, thereby altering the supply chain ecosystem. The mass production at CATL's Hungarian facility is set to reduce battery costs by 22%, posing a direct threat to Tesla’s vertical integration advantage. In this environment, Tesla's "European Renaissance Plan" encounters unprecedented complexities.