The battery that once powered a great love between Tesla CEO Elon Musk and California car buyers is slowly fading away.
New registrations of the Tesla Model Y in the Golden State have tumbled for a full year, with its market share dropping 8.5% compared to last year, according to Experian Automotive data. The California New Car Dealers Association third quarter outlook report published on Friday reveals the electric vehicle maker’s dominance in the country’s largest market for battery-electric vehicles (BEVs) has continued to erode. Among the top three passenger cars sold in California, the Tesla Model 3 has fallen to third place, behind the Honda Civic and the Toyota Camry, potentially opening the door for a full-throttle free-for-all among automotive brands.
Overall, Tesla’s brand share fell from from 13.6% to 12.1%, year-to-date. Being outsold by non-luxury brands such as Honda and Camry is a blinking-red signal shift in the overall competitive landscape. The Model 3 catapulted Tesla onto the main stage as a mass-market brand, but it now faces new cast of rivals including Cadillac, Lexus, Hyundai, and BMW, all of which made major gains in the past year. Cadillac, for instance, clocked a 315.2% increase in BEV registrations, while Tesla sunk from 63% to 54.5%.
There may also be rising tension in the market due to California’s strong Democratic-leaning population, which is more likely to buy an EV, and Musk’s support for Trump. The CNCDA outlook report, which tracks trends in California’s new vehicle market, comes as the electric vehicle CEO has continually praised Republican Presidential nominee Donald Trump. The share of registered Democrats in California has risen to 45.3% since 2020, while Republican registration has remained flat at about 23.9%, according to the Public Policy Institute of California. Meanwhile, a 2020 study found U.S. democrats are significantly more willing to adopt EVs than Republicans. And California’s share of the BEV market year-to-date is 22.2%, compared to an overall U.S. market share of 7.9%, CNCDA reported.
Plus, Musk hasn’t been kind to California. He publicly pledged to move SpaceX, and X out of the state and into Texas this year. The “final straw” came after Gov. Gavin Newsom signed into law the Support Academic Futures and Educators for Today’s Youth (SAFETY) Act, aimed at prohibiting the forced outing policies of students in schools. Musk said it was tantamount to an attack on families and companies.
It might not hurt that Democratic Presidential nominee Kamala Harris is a California native. The Vice President lives in Washington, D.C., but she and husband Doug Emhoff own a $5 million mansion in Brentwood, Calif.
Brian Maas, president of the CNCDA, told Fortune there are likely several factors underlying the trend.
“We believe the slip for Tesla could be happening for a number of reasons, starting with market saturation,” said Maas in a statement. “Californians who wanted and could afford Teslas have mostly already done so.”
Plus, Tesla hasn’t rolled out new accessible models, apart from the “very niche and expensive Cybertruck,” he added. There are also now more options from traditional car manufacturers. “And this is all before we bring into the conversation Musk’s political views and comments, which don’t align with many Californians,’ particularly his initial customer base of Bay Area drivers,” said Maas.
Tesla did not respond to a request for comment.
Why is Tesla stock surging?
Still, Tesla has been on a tear this week, rising 22%, after a blockbuster earnings call and report fueled its strongest performance since 2013. Part of that was due to Tesla’s report that its $80,000 apiece Cybertruck turned a profit for the first time. The rally sent Musk’s personal wealth soaring another $34 billion, pushing his net worth to $270.3 billion in a single day.
And Musk has hinted that Tesla has more innovations in store. This month, Tesla announced a self-driving robotaxi, called a Cybercab, and a fully autonomous Robovan with enough space for a family. On Wednesday, Musk confirmed the robotaxi has been making maiden voyages under the auspices of Tesla employees on the streets of San Francisco. The world’s-richest-man said during the earnings call that other car companies will find themselves in jeopardy if they don’t focus on autonomy, as Tesla has.
“A lot of automotive companies or most automotive companies have not internalized this, which is surprising, because we’ve been shouting this from the rooftops for such a long time, and it will accrue to their detriment in the future,” said Musk.
To be sure, the Tesla Model Y is still the top-selling car in California year-to-date, CNCDA reported. And, Tesla is California’s second-best-selling brand after Toyota. Furthermore, the Model Y competes in the red-hot SUV/crossover segment, which dominates the market. The Model 3 competes in the shrinking passenger car segment, where sales dropped 13.1%, while SUVs rose 3.4%. The Model Y sells nearly three times the volume of the Model 3.
It remains to be seen whether that future could be at risk due to Musk’s political affiliations. His strong political stance has gone against the grain compared to other high-profile CEOs. A rep for JPMorgan Chase CEO Jamie Dimon, for instance, issued a denial this month that Dimon had endorsed Trump.
Overall, that trend has held for much of this election season. However, talking politics in the workplace is likely to ramp up in the next few weeks as votes pour in and employees head to the polls in November.
Kate Duchene, CEO of global professional services firm RGP, told Fortune that ever since the pandemic, people have further blended their personal and professional worlds, so more talk is likely inevitable.
“For any company, it’s becoming more challenging to keep political conversations completely outside of work,” said Duchene, who consults with 70% of Fortune 500 companies. “Businesses and managers should be aware that these types of conversations are more than likely to happen, especially in the coming weeks. When it comes to political discussions, diversity of opinions should be welcome in the workplace, as long as all parties keep it professional and respectful.”
