Tesla remains the second best-selling car brand in California, but what does the future hold?

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Tesla’s success in California is unprecedented, astounding, and huge. In just over a decade, Tesla has grown from a tiny company with zero shipments to an industry giant. Tesla has the best-selling car in the world, the Model Y, and in California, it sells almost twice as many Ys as the second best-selling car, the Toyota RAV4. But I’m not sure that’s the most surprising statistic.

What I find most impressive is how Tesla has become incredibly popular in California overall, becoming the second largest car brand in the world behind Toyota.

It’s all great news. A fairy tale. But fairy tales don’t last forever. And it makes you wonder: Could a storm be just around the corner?

Please let me explain.

First of all, it’s not normal for the top-selling model to sell twice as much as the second-selling model. How long can this continue? Second, so many Californians have bought Model Ys in the last few years and are driving them around California’s streets. The market may be saturated with this model. And the Model 3 is making up most of the rest of Tesla’s sales, and is in the same or even more of a situation with the Model Y. The market may be even more saturated with the Model 3.

As evidence of these concerns, Tesla’s sales are down 24% in Q2 2024 compared to Q2 2023, and down 17% overall for the first half of the year. That’s a significant drop in sales, even if we take solace in the good news that Tesla remains the second-best selling car brand in California.

There are solutions, or potential solutions. The Tesla Cybertruck is ramping up production. It may feel like a slow ramp, but it’s the fastest ramp in Tesla history. The question is, how much demand there is for the Cybertruck in the states? It could be huge, or it could be very niche. We don’t know yet. But it’s one way of saying it’s a partial solution to the declining demand for other models.

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Another big question is Tesla’s next model, which is supposed to be a more affordable car. It could hit the market as early as next year or as early as 2026. One key question is how much it will cannibalize the demand for Model 3 and Model Y. Will it cannibalize very little? Almost completely? Something in between? We don’t know and it’s very hard to guess. But if it cannibalizes the demand for Model 3 and Model Y significantly, it could deal a further blow to Tesla’s profit margins.

Also, there will be an upgrade for the Model Y as well, just like the Model 3, which could boost sales significantly. On the other hand, the Model 3 doesn’t seem to have received a big boost, and many buyers are not interested in parting ways with it. It is again very difficult to speculate on how much the upgraded Tesla Model Y will or won’t boost demand.

There’s also the big unknown: robotaxis. Once Tesla hits their self-driving software goal, demand will explode. Don’t worry about that. The big question is if or when Tesla will get their self-driving software done. Some think it will be done tomorrow, others think it will never be done. The truth is, no one knows.

What about other models? Well, it doesn’t look like Tesla has any plans to bring any other models to market anytime soon.

What about sociopolitical issues? Tesla’s sales decline in California seems likely due in part to Elon Musk’s antagonism towards California as a whole and the state’s Democratic majority. How can Tesla get out of this dilemma? Can Musk reverse course or at least make amends? Can Tesla do so alone, as long as Musk remains the face of the company and its largest shareholder?

There are a lot of questions here, further concerns, and some potential for renewed growth. But overall, if I were to make a guess, I would say that Tesla will continue to lose sales in California, or at best remain in a stable stagnant pattern, until a cheaper model is released. I leave open the possibility that the Cybertruck could boost Tesla sales significantly, but I have a hard time believing that it will. I have no idea how the Model Y will sustain such high sales in the state, and I don’t see how Tesla can improve it, or if they can improve it for long. We’ll see, but aside from my own thoughts, what do you guys think about Tesla’s future in California?

Related article:

Tesla’s California sales fall 17%

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