Tesla Faces Steep Decline in Canadian Market Amid Challenges

Tesla Inc. is grappling with significant challenges in Canada, as evidenced by its recent financial performance and dramatic drops in vehicle registrations. In the second quarter of 2025, Tesla’s revenue fell by 12 per cent year over year to US $22.5 billion. The company also experienced a steep decline in operating margins, which plummeted to 4.1 per cent, and a 14 per cent reduction in vehicle deliveries, totaling 384,122 units. Particularly alarming is the situation in Canada, where Tesla vehicle registrations have decreased by 67 per cent in the first half of 2025.

In Quebec, the decline has been particularly pronounced, with only 524 new Tesla vehicles sold between January and March 2025—an 85 per cent drop from the 5,097 units registered in the previous quarter. This sharp decrease raises questions about Tesla’s ability to rebound in the Canadian market.

Factors Behind Tesla’s Declining Reputation

Several factors have contributed to Tesla’s challenges in Canada. David Adams, Chief Executive of Global Automakers Canada, points to CEO Elon Musk’s association with right-wing politicians, particularly during his time with the Trump administration, as detrimental to the brand’s image in more liberal markets like Canada. Adams stated, “A lot of it is their CEO’s association with the Trump administration and his work there, and then also his blatant antagonism towards Canada.”

Moreover, the entry of Chinese electric vehicle (EV) manufacturers such as BYD Auto Co. Ltd. has intensified competition, further squeezing Tesla’s market share. Legacy automakers like Volkswagen AG have also ramped up their EV offerings, contributing to Tesla’s declining sales figures.

Impact of Canada’s Zero-Emission Vehicle Policies

Canada’s zero-emission vehicle (ZEV) mandate requires automakers to ensure that 20 per cent of their sales are electric vehicles by 2026. This policy, introduced under former Prime Minister Justin Trudeau, is intended to help reduce emissions from gas-powered vehicles. However, Adams critiques the mandate as a burdensome measure that complicates the transition for legacy automakers, stating, “The emissions standards are being tightened to such a degree that, really, the only way automakers are going to be able to comply is to start migrating more towards electrification.”

The mandate is expected to ramp up to 60 per cent of total sales by 2030 and 100 per cent by 2035. While Tesla stands to benefit from these regulations due to its exclusive focus on EVs, the overall tightening of the market has put pressure on the company.

The recent exhaustion of the federal Incentives for Zero-Emission Vehicles (iZEV) rebate program, which had a budget of US $3 billion, represents another setback for Tesla. The program ended in January 2025, removing a significant financial incentive for consumers. Tesla had previously claimed US $43 million in rebates, prompting some scrutiny over the timing of its sales efforts. While investigations found no wrongdoing, several provinces, including British Columbia and Nova Scotia, have since tightened eligibility rules, further complicating Tesla’s sales landscape.

Adams highlights the unique challenges posed by the ZEV credit system, stating, “When you’re looking at trying to become compliant by buying credits from your competitors in the marketplace, it’s an odd situation where you’re essentially helping your competitor in the same market that you’re trying to compete in.”

Future Prospects for Tesla in Canada

Tesla’s current predicament raises questions about its future in Canada. Price adjustments may be necessary to attract consumers back to the brand, but this solution presents its own set of challenges. “Money talks, and if there are significant price reductions on the vehicles, then that might persuade some people to come back to the brand,” Adams noted. Yet, with potential tariff increases looming, further price cuts could jeopardize Tesla’s profitability.

The situation appears precarious for Musk and Tesla. “The challenge when you start reducing the price is that all the people who paid the higher price a year or six months ago become antagonized,” Adams explained. This could devalue the resale market for existing Tesla owners, complicating the brand’s recovery efforts.

Looking ahead, Adams argues that a reevaluation of the federal EV mandate is crucial for stabilizing the market. He suggests scrapping or significantly revamping the current targets, which he believes detract from the real issue of consumer demand. “These mandates are just a distraction of time and resources at the companies that could be better served being utilized elsewhere,” he stated.

As the Canadian market evolves, Tesla faces the dual challenge of restoring its reputation while navigating a complex regulatory landscape. Whether the company can regain its footing in Canada remains uncertain, but the stakes are high for both Tesla and the broader EV market.