NEW YORK CITY, New York: Tesla has surrendered its long-held position as the world's largest electric vehicle maker after a second straight year of falling sales, as intensifying competition and the end of U.S. tax incentives weighed on demand, allowing China's BYD to surge ahead.

Global EV sales rose 28 percent last year, but Tesla's deliveries dropped about 8.6 percent in 2025, while BYD recorded rapid growth, particularly in Europe, to outsell the U.S. automaker for the first time on an annual basis.

Shares of Tesla fell about two percent in afternoon trading as investors digested the results. The setback raises fresh questions about Tesla's ability to revive its core car business as Chief Executive Elon Musk increasingly emphasizes robotaxis, humanoid robots, and artificial intelligence.

"Investors are so focused on the future with Tesla that they are ignoring delivery numbers. It's about Optimus, Robotaxi, and physical AI," said Dennis Dick, a trader at Triple D Trading, which owns Tesla shares.

Tesla's weaker performance followed the expiry of the US$7,500 U.S. federal EV tax credit, which had supported demand earlier in the year. Third-quarter deliveries were boosted by buyers rushing to secure the incentive before President Donald Trump's administration ended it in September.

In the October-to-December quarter, Tesla delivered 418,227 vehicles, down 15.6 percent from 495,570 a year earlier. Analysts had expected 434,487 deliveries, according to Visible Alpha.

For the full year, Tesla delivered 1.64 million vehicles, compared with 1.79 million in 2024. Analysts polled by Visible Alpha had forecast about 1.65 million deliveries.

The broader U.S. EV market also cooled. Electric vehicles accounted for 6.2 percent of retail vehicle sales in the quarter, down 3.6 percentage points from a year earlier, while average transaction prices climbed nearly $6,000 to $53,300, according to J.D. Power data.

The delivery decline was not unexpected, said Seth Goldstein, senior equity research analyst at Morningstar, noting that markets had already priced in weaker demand after the tax credit ended.

Tesla said it deployed a record 14.2 gigawatt-hours of energy storage products during the year. The company is scheduled to report its fourth-quarter financial results on January 28.

China's BYD benefited from substantial overseas expansion, particularly in Europe, where it has steadily widened its lead over Tesla. BYD said sales outside China rose to a record one million vehicles in 2025, up about 150 percent from 2024.

The company has said it aims to sell as many as 1.6 million vehicles outside China in 2026, though it has not disclosed an overall sales target.

Competition has also intensified from European automakers such as Volkswagen and BMW, further pressuring Tesla's market share.

Tesla registrations declined across much of Europe in December, although sales jumped in Norway. That strong showing contrasted with shrinking market share across the rest of the region in 2025.

In response, Tesla launched lower-priced "Standard" versions of its Model Y and Model 3 in October, priced about $5,000 below previous base models, to defend volumes and appeal to more price-sensitive European buyers.

The move disappointed some investors who had hoped for deeper price cuts or a new mass-market vehicle.

Despite the slump in deliveries, Tesla's shares rose about 11.4 percent in 2025, boosting Musk's personal wealth.