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Tesla’s success in California has been unprecedented — phenomenal and enormous. In a little more than a decade, Tesla went from being a baby company with no deliveries at all to a giant in the industry. It has the top selling vehicle model in the world, the Model Y, but in California, the Y actually has almost twice as many sales as the second best selling model, the Toyota RAV4. But I’m not even sure if that’s the most stunning stat.
What I think might be most impressive is that Tesla as a whole has risen to such a height in the state that it’s the second best selling auto brand in the Golden State, only trailing world leader Toyota.
That’s all great news. It’s a fairytale. However, fairytales don’t last forever. And one has to wonder: is a storm around the corner?
Let me explain.
First of all, it’s not normal for the top selling model to have twice as many sales as the second best selling model. How long can that last? Secondly, many, many, many Californians have bought the Model Y in the past few years, and they cover California streets — there’s a chance the market is getting saturated when it comes to this model. And then, the Model 3 is carrying almost the rest of the weight for Tesla, and it’s the same story as with the Model Y, or even a tougher one. The market may be even more saturated when it comes to the Model 3.
Potentially providing evidence to these concerns, Tesla sales dropped 24% in the second quarter of 2024 compared to second quarter of 2023, while they were down 17% in the first half of the year overall. That’s a huge drop in sales. Consoling yourself with the good news that Tesla is still the second best selling auto brand in California doesn’t change the trend.
There are a couple of solutions, or potential solutions. The Tesla Cybertruck is ramping up. It might feel like a slow ramp-up, but it’s actually Tesla’s quickest ramp-up ever. The question is how much demand there will be for it in the state. Demand could be enormous, or it could be quite niche. We don’t know yet. But let’s say it’s one partial solution for drooping demand for other models.
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The other big one is Tesla next model, which is supposed to be a more affordable car. It could come to market as early as next year, or in 2026. One key question is how much that will eat into demand for the Model 3 and Model Y. Almost not at all? Almost entirely? Somewhere in between? We can’t know, and it’s very hard to even guess. But if it does significantly eat into Model 3 and Model Y demand, that could be extra painful to Tesla margins.
There’s also the coming upgrade to the Model Y, like the Model 3 saw. That could result in a notable boost in sales. On the other hand, it didn’t seem to provide a huge boost to the Model 3, and many buyers are not interested in giving up stalks. It’s again very hard to guess how much an upgraded Tesla Model Y might boost demand, or not.
There’s the big wildcard as well: robotaxis. If Tesla completes its self-driving software goal, demand will explode. No worries about that. The big question is if it will do so, or when it could do so. Some people think tomorrow. Some think never. No one actually knows.
What about other models? Well, Tesla doesn’t seem to be bringing any other models to market anytime soon.
What about sociopolitical matters? It seems highly likely that part of Tesla’s sales drop in California is due to Elon Musk forming a combative relationship with California as a whole and with Democrats, which are dominant in California. How can Tesla wind itself out of that dilemma? Is it possible for Musk to make a U-turn, or at least make amends? Is it possible for Tesla to do so on its own, while Musk remains the talking head of Tesla and its #1 shareholder?
There are a lot of questions here, more concerns, and some potential for growth again. However, overall, if I had to guess, I’d guess that Tesla will continue losing sales in California until the cheaper model comes out, or at most hang in a sort of steady, stagnant pattern. I’m leaving the door open on the Cybertruck boosting Tesla sales to a significant degree, but I have a hard time believing that will be the case. I really struggle to see the Model Y sustaining such high sales volumes in the state, and I don’t see how Tesla could remedy that very much or for long. We’ll see what happens, but with my thoughts out of the way, what are yours for the future of Tesla in California?
Related stories:
Tesla Sales Drop 17% in California
Electric Vehicle Market Share At 21.4% In California — BEV Models #1 In 4 Vehicle Classes
Tesla Is Facing Demand Struggles On 3 Fronts
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