Tesla Cuts Model Y Financing in New Signs of Demand Slowdown

Tesla (NYSE: TSLA) has cut the financing rates for its new Model Y in the US. While it is usual for the company to offer incentives towards the end of the quarter, this time around it is offering the discount just about a month into the quarter and that too on the latest version of its best-selling vehicle.

Tesla said that it is offering “1.99% APR or $0 Due at Signing available for well-qualified buyers,” which implies a discount of a few thousand dollars on the model. Notably, Model Y is the best-selling vehicle globally, not only in the electric vehicle (EV) space but across all vehicle types. The company launched its long-awaited refreshed version of the aging model earlier this year, but the discounts seem to suggest that the demand for the model is perhaps not as strong.

Tesla Reported a Decline in Q1 Deliveries

Tesla produced 362,000 vehicles in Q1 2025 and delivered 332,000 of these which signals a significant inventory buildup. For context, the US electric vehicle (EV) giant delivered 386,810 vehicles in the corresponding quarter last year and the 13% decline in its Q1 2025 deliveries was far worse that what analysts were expecting.

Europe has been a particularly challenging market for Tesla. The company’s market share in France fell to 1.63% in the first quarter of 2025 as compared to 2.55% in the corresponding quarter last year. While Tesla’s sales in the UK rose slightly in Q1, the company registered over 50% declines in Germany, Sweden, and Denmark.

Tesla reported a YoY fall in its deliveries last year also which was the first time that its shipments fell on an annual basis. Incidentally the company managed to grow its deliveries in 2020 also even as the global automotive industry was rattled by the supply chain crisis emanating out of the COVID-19 pandemic.

In its Q4 2024 shareholder deck Tesla said, “With the advancements in vehicle autonomy and the introduction of new products, we expect the vehicle business to return to growth in 2025.” The forecast was far worse that the up to 30% delivery growth that CEO Elon Musk previously touted.

Tesla to Update Its 2025 Guidance in Its Q2 Update

The company further toned down its guidance during the Q1 2025 earnings release and said, “It is difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains, our cost structure and demand for durable goods and related services.”

It added, “While we are making prudent investments that will set up both our vehicle and energy businesses for growth, the rate of growth this year will depend on a variety of factors, including the rate of acceleration of our autonomy efforts, production ramp at our factories and the broader macroeconomic environment. We will revisit our 2025 guidance in our Q2 update.”

Musk’s Politics Has Hurt TSLA’s Sales

During the Q1 earnings call, Musk admitted that his association with President Donald Trump’s Department of Government Efficiency (DOGE) is hurting Tesla and announced that he would step back from the role.

“So, I think I’ll continue to spend a day or 2 per week on government matters for as long as the President would like me to do so, and as long as it is useful. But starting next month, I will be allocating far more of my time to Tesla. And now that the major work of establishing the Department of Government Efficiency is done,” said the billionaire during the earnings call.

Tesla Has Been Losing Market Share in the US

According to data from Kelly Blue Book, EV sales in the US rose 11.4% YoY in the first quarter of 2025, while the penetration level of new EV cars rose to 7.5% compared to 7% in the corresponding quarter in 2024.

General Motors’ US EV sales more than doubled in Q1, and the Detroit giant became the second-largest EV seller in the US with a double-digit market share. On the other hand, Tesla’s sales in the US fell 9% in the quarter while its market share dipped to 44% compared to 51% in the first quarter of 2024.

Chinese Automakers Are Giving Tesla a Tough Fight

Tesla has also been losing market share in China as domestic brands especially BYD have rated ahead. While Tesla is not much impacted by the tit-for-tat tariffs by China and the US, the company has stopped taking fresh orders for its premium Model S and X in China. Tesla has its massive Gigafactory in China where it produces its Model 3 and Model Y while importing the other models from its plant in the US.

Notably, in 2011, Tesla CEO Elon Musk laughed at the possibility of BYD becoming a competitor to Tesla. However, the Chinese company has proven critics wrong and offers EV models at quite competitive prices.

BYD’s annual revenues rose 29% YoY to $107 billion last year while Tesla’s revenues were around $97.7 billion. The steep rise in BYD’s sales was led by record 4.27 million deliveries which was well ahead of Tesla which reported a YoY fall in its 2024 deliveries – the first in the company’s history.

BYD has already beaten Tesla in terms of total deliveries, and its Q1 battery electric vehicle shipments were also ahead of Tesla’s.

Analysts Turn Bearish on TSLA Stock

Several analysts have lowered Tesla’s target price this year. There are concerns over Tesla’s ability to grow its deliveries this year, while its profits have nosedived due to the price war. Notably, if not for the EV tax credit, which the Trump administration reportedly wants to do away with, Tesla would have posted a GAAP loss in Q1.

Meanwhile, a lot is now riding on the robotaxi launch later this year. On multiple occasions, Musk has touted autonomous driving and robotaxis as key drivers of its valuations. However, the robotaxi is running late by years while Tesla cars are still not fully autonomous despite Musk predicting it multiple times for around a decade now.