(Reuters) - Tesla's market share in Europe continued to shrink year-on-year in February, data showed on Tuesday, as sales of the all-electric car maker dropped for a second consecutive month despite rising overall EV registrations on the continent.

As competition grows, and ahead of the launch of its new Model Y mid-size SUV, Elon Musk's battery-electric (BEV) brand has sold 42.6% fewer cars in Europe so far this year, data from the European Automobile Manufacturers Association (ACEA) showed.

Tesla commanded 1.8% of the total market and 10.3% of the BEV market in February, down from 2.8% and 21.6% last year respectively.

It sold fewer than 17,000 cars in the European Union, Britain and European Free Trade Association countries, compared to over 28,000 in the same month in 2024.

Tesla currently faces a number of challenges in Europe. The EV maker has a smaller, ageing lineup while traditional automaker rivals and new Chinese entrants alike continue to launch new, often cheaper electric models.

Musk, the company's CEO, has also stirred controversy by courting far-right parties in Europe, which has added to Tesla's sales slump.

Overall, BEV sales in the same markets were up 26.1% versus February 2024, even as total car sales fell 3.1%, according to the ACEA.

An EU filing showed last week that Tesla had formed a pool to sell carbon credits to more than half a dozen automakers as they try to meet European CO2 emission targets which came into effect in January.

While based on 2024 figures, analysts estimate that Tesla's sales can more than compensate for those companies' emissions, the situation might change if its sales continue to drop.

The EU introduced the targets to help EV pickup in the bloc, but it is expected to approve on Tuesday a relaxation of those measures, to allow a three-year averaging of fleet emissions.

While total new car registrations in the EU fell 3.4% in February, BEV sales jumped 23.7%, a second consecutive increase, while hybrid car (HEV) sales rose 19%.

Electrified vehicles - either BEV, HEV or plug-in hybrids (PHEV) - sold in the bloc accounted for 58.4% of all passenger car registrations in February, up from 48.2% a year earlier.

"2025 has started really brightly for Europe's electric car market," E-Mobility Europe's secretary general Chris Heron told Reuters.

"We are seeing the early impacts from manufacturer plans to meet the EU's scheduled CO2 limits".

Among Europe's top-selling brands, Volkswagen and Renault's sales rose 4% and 10.8% respectively in the EU, Britain and European Free Trade Association countries in February, while Stellantis' ( STLA ) sales fell 16.2%.

Sales at SAIC Motor rose by 26.1% despite the impact of EU tariffs on Chinese-made EVs, while they were down 15% at Geely-owned Volvo.

The market share of brands not accounted for by the ACEA, including BYD and other Chinese carmakers, rose to 2.5% from 1.5% a year before.

Total car sales in Spain rose 11% year-on-year in the month, while they declined in other major markets, with registrations falling 6.4% in Germany, 6.2% in Italy and 0.7% in France.