Electric vehicle sales remain solid in 2025, but momentum may be cooling as both the U.S. and China reduce key incentives—a move that could weigh on demand in two of Tesla’s biggest markets.
In the U.S., the federal $7,500 EV tax credit expired in September, prompting a rush of last-minute purchases. EVs accounted for a record 12% of new car sales that month, and Tesla sold a record 497,099 vehicles in Q3, up 7% year over year, including 179,525 cars in the U.S. (+8%). But without tax benefits, future sales growth could slow.
In China, where Tesla earns over 20% of its revenue, incentives are also being scaled back. Citi analyst Jeff Chung noted that the country’s New Energy Vehicle (NEV) purchase tax exemption will be halved in 2026, likely leading to softer demand in the first half of next year.
China’s EV market showed mixed performance in October.
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NIO delivered a record 40,397 vehicles, up 93% year over year.
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XPeng hit a record 42,013, up 76%.
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Li Auto fell 38% to 31,767 deliveries.
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BYD delivered 222,559 all-electric cars, up 17%, though its total sales (including hybrids) fell 11%.
Altogether, the four brands delivered 336,736 all-electric cars, up 18% from a year earlier. However, BYD’s domestic sales dropped 24%, highlighting signs of cooling demand in the world’s largest auto market.
Tesla’s position in China is weakening: industry data show it sold about 438,000 vehicles through September, down 5% year over year—on track for its first-ever annual decline in the region.
Analysts warn that intensifying competition and waning subsidies could make 2026 an even tougher year. Coming into Monday, Tesla and BYD shares were both up about 13% year to date, while NIO and XPeng gained 66% and 99%, respectively.
With incentives fading and growth cooling, the EV industry’s next phase may test which players can sustain demand without government support.
