BMW took the crown as Europe’s leading brand for fully electric vehicles for the first time ever in July, driven by demand for its all new iX2 compact crossover. According JATO’s figures, the German premium carmaker sold nearly 14,900 cars in the month powered solely by battery, 300 more than Tesla as volumes for the Model Y dropped off steeply.

Initial data signaling August hasn’t been any kinder to Musk in Europe’s largest individual markets. Sales in France fell by half over last year’s month, while in Germany they plunged by two-thirds. While the loss of subsidies and new tariffs on Model 3 sedans imported from China contributed to that poor result, industry analysts fear Tesla is now paying the price for pushing a stale portfolio of vehicles into a stagnant European EV market where consumers are spoiled for choice.

PwC analyst Steven van Arsdale, himself a Model Y owner, argues Tesla must soon launch new smaller vehicles practical for Europe’s cramped spaces and winding, narrow roads. Otherwise they risk losing more ground.

“There’s some weakness in their armor,” he tells Fortune. “It’s surprising they’ve done as well as they have, but it will be hard to continue to grow volume without having something in the lower segments.”  

The car market is typically divided up into slices based on vehicle size, starting with minicars like the Fiat 500, before graduating to a subcompact like the Renault Clio, the larger Volkswagen Golf compact, the Tesla Model Y mid-size, and so on. These classes usually are referred to as letters, with the 500 starting in the A-segment and the Y as a D-segment, for example.

“Europe has traditionally always been really a B and C-segment heavy,” says von Arsdale, “so the D-segment where Tesla operates is just not the bread and butter of the market.”

September proves a crucial month

Matthias Schmidt, a Germany-based EV industry analyst and publisher of a monthly industry report, cautions not to read too much into the figures—at least not yet—since July and August are seasonally among the weakest as people go on holiday. 

That’s why this month will prove so crucial. Not only are consumers back from vacation, September is traditionally one of the two strongest car sales months in the lucrative UK market thanks to semi-annual plate change that is similar to a new model year designation in the U.S..

If sales don’t show a sharp outperformance versus its EV peers this month, it is a clear indication that Tesla has deeper problems in Europe that only fresh new product can solve. 

“Musk is beginning to realize Tesla needs different models in different segments,” says Schmidt. “Their range doesn’t have a very good spread.”

The EU electric-vehicle market is far deeper and more diverse in its offering than in the U.S., since carmakers on the continent must sell a certain number to avoid draconian fines if they fail to reduce their vehicles’ carbon emissions. 

Next year the EU raises the bar, meaning the continent’s carmakers will be more incentivized than ever to try and move their less profitable EVs lest they face steep penalties. 

EV demand in the UK jumps, while Tesla sales slump

It isn’t helping either that Musk is giving his traditional demographic of affluent progressives plenty of cause to eyeball his competitors’ offerings. Last month the Tesla CEO egged on UK race riots with divisive and incendiary language and even spread fabricated news on social media that prompted outrage in the country.

Whether triggered by his comments or not, Tesla volumes in August plummeted by a full quarter in the UK last month. This time however, Tesla can’t blame this on a declining overall market for EVs. 

Unlike Germany for example, the UK has been a real bright spot in Europe. EV sales in the country recorded their best performance since December 2022, with registrations up 11% over last year’s period, accounting for roughly every fourth new vehicle sold.

European competitors losing their appetite after EV investments disappoint

Fortunately, some key competitors are leaving the door ajar for Tesla to come back, should it indeed launch new models in Europe in the coming months.

Volkswagen Group once challenged Tesla for leadership of the global EV market, but enthusiasm for the technology at its Wolfsburg headquarters has notably waned after a number of products have disappointed. VW is now facing historic job cuts and plant closures.

“The transformation is indeed proceeding more slowly than many experts predicted years ago,” VW Group CEO Oliver Blume told German business daily Handelsblatt last week. 

Volkswagen is not the only one revising its plans. This month, Scandinavian carmaker Volvo scrapped its target to only sell EVs starting in 2030. That means Tesla can expect less EV investment and therefor likely less strenuous competition from legacy brands in Europe. 

This leaves the Chinese as the greatest longer-term threats to Tesla in Europe. But surprisingly they are struggling to make inroads. 

Native Chinese brands struggle without name recognition and dealer network

Take Germany, still the largest market for electric vehicles in Europe despite the recent slump. The only Chinese-built electric vehicle of note is the MG4 hatchback with more than 10,000 sold through August. That’s no coincidence: The MG badge is a storied UK brand known in Europe with an existing dealer network. Another popular option is Smart, a Mercedes brand that’s now operated jointly with new partner Geely, which imports from China.

By comparison, native Chinese brands that lack a legacy distribution network are performing poorly. The BYD Seal, a popular Tesla Model 3 competitor in China, has sold just 400 cars in Germany in the first eight months of this year.

PwC Autofact’s van Arsdale believes there’s plenty of chances for Tesla to claw back market share by offering a smaller vehicle at a cheaper entry price. He cited the substitution of more expensive features and materials for cheaper versions as one possibility, or eliminating them altogether. Tesla already applied this process, known as decontenting, earlier this year in the Mexican market, using cloth fabric on their seats.

He’s less convinced, however, that Tesla’s Full Self-Driving software, which automates many of the driving functions, could help it gain new buyers if it is indeed approved for use in Europe early next year. 

“it seems to me they still have a long ways to go to get the system working in Europe,” he says.