Elon Musk is facing a moment of truth in Europe as buyers flock to Tesla

BMW took the crown as Europe’s leading all-electric vehicle brand for the first time in July thanks to demand for its new iX2 compact crossover. According to JATO figures, the German premium carmaker sold nearly 14,900 battery-only cars in the month, 300 more than Tesla, as Model Y volumes fell sharply.

Initial reporting of August data was no kinder to Musk in Europe’s largest individual markets. Sales in France fell by half compared to last month, while in Germany they fell by two-thirds. While the loss of subsidies and new tariffs on Model 3 sedans imported from China contributed to the poor result, industry analysts fear Tesla is now paying the price for pushing an aging portfolio of vehicles into a stagnant European EV market. where consumers are spoiled for choice.

PwC analyst Steven van Arsdale, himself a Model Y owner, says Tesla needs to launch new smaller vehicles soon, practical for Europe’s tight spaces and narrow, winding roads. Otherwise they risk losing more ground.

“There’s a chink in their armor,” he says wealth. “It’s surprising that they’ve done as well as they have, but it’s going to be hard to keep growing volume without having something in the lower segments.”

The car market is typically sliced ​​by vehicle size, starting with minicars like the Fiat 500, before moving on to a subcompact like the Renault Clio, the larger compact Volkswagen Golf, the mid-sized Tesla Model Y, and so on away. These classes are usually referred to as letters, with 500 starting as an A segment and Y as a D segment, for example.

“Traditionally, Europe has always been really a heavy B and C segment,” von Arsdale says, “so the D segment that Tesla operates in is not simply the bread and butter of the market.”

September is proving to be a crucial month

Matthias Schmidt, an analyst of the electric vehicle industry in Germany and editor of a monthly industry report, cautions against reading too much into the numbers — at least not yet — because July and August are seasonally among the weakest as people leave for holidays.

That’s why this month will prove so crucial. Not only are consumers back from holiday, but September is traditionally one of the strongest two months for car sales in the lucrative UK market thanks to the half-yearly change of nameplates, which is akin to a new designation of the US model year.

If sales don’t show a strong performance against its EV peers this month, it’s a clear indication that Tesla has deeper problems in Europe that only a fresh new product can solve.

“Musk is starting to realize that Tesla needs different models in different segments,” says Schmidt. “Their range doesn’t have a very good spread.”

The EU’s electric vehicle market is much deeper and more diverse in its offerings than in the US, as automakers on the continent must sell a certain number to avoid draconian fines if they fail to reduce their vehicles’ carbon emissions their.

Next year, the EU is raising the bar, meaning the continent’s carmakers will be more motivated than ever to try to move their less profitable electric vehicles to avoid facing severe penalties.

Demand for electric vehicles in the UK is growing, while Tesla sales are falling

It doesn’t help that Musk is giving his traditional demographic of affluent progressives plenty of reasons to look at his competitors’ offerings. Last month, the Tesla CEO supported race riots in Britain with divisive and incendiary language and even spread fabricated news on social media that caused outrage in the country.

Whether triggered by his comments or not, Tesla’s August volumes fell by a full quarter in the UK last month. This time, however, Tesla can’t blame it on an overall declining electric vehicle market.

Unlike Germany, for example, Britain has been a real bright spot in Europe. Electric vehicle sales in the country posted their best performance since December 2022, with registrations up 11% year-on-year, accounting for about one in four new vehicles sold.

European competitors lose appetite after EV investments disappoint

Fortunately, some key competitors are leaving the door ajar for Tesla to make a comeback, should it indeed launch new models in Europe in the coming months.

Volkswagen Group once challenged Tesla for leadership of the global electric vehicle market, but enthusiasm for the technology at its Wolfsburg headquarters has waned significantly after a number of products disappointed. VW is now facing historic job cuts and factory closures.

“The transformation is indeed taking place more slowly than many experts predicted years ago,” VW Group CEO Oliver Blume told the German business daily. Handelsblatt last week.

Volkswagen is not alone in revising its plans. This month, Scandinavian carmaker Volvo abandoned its goal of selling only electric vehicles from 2030. This means that Tesla can expect less investment in electric vehicles and thus probably less intense competition from part of the old brands in Europe.

This leaves the Chinese as the biggest long-term threats to Tesla in Europe. But surprisingly, they struggle to make inroads.

Native Chinese brands struggle without name recognition and dealer network

Take Germany, still the largest market for electric vehicles in Europe despite the recent recession. The only electric vehicle of note built in China is the MG4 hatchback, with more than 10,000 sold by August. It’s no coincidence: the MG badge is a well-known British brand in Europe with an existing dealer network. Another popular option is Smart, a Mercedes brand that is now operated with new partner Geely, which imports from China.

By comparison, native Chinese brands that do not have a legacy distribution network underperform. BYD Seal, a popular Tesla Model 3 competitor in China, sold just 400 cars in Germany in the first eight months of this year.

PwC Autofact’s Van Arsdale believes there’s plenty of chance for Tesla to regain market share by offering a smaller vehicle at a cheaper entry price. He cited replacing more expensive features and materials with cheaper versions, or eliminating them altogether, as a possibility. Tesla already applied this process, known as satiation, earlier this year in the Mexican market, using cloth fabrics on the seats.

However, he is less convinced that Tesla’s Full Self-Driving software, which automates many of the driving functions, could help it win over new buyers if it is indeed approved for use in Europe early next year.

“It seems to me that they still have a long way to go to make the system work in Europe,” he says.