Tesla (TSLA) slid 15% yesterday, marking one of the worst trading days in its short 15-year history as a listed company. The decline erased all of the goodwill gains enjoyed by the stock since Donald Trump’s election and inauguration over the past five months. The reason? A combination of sharply weaker sales and various controversies linked to the EV giant’s enigmatic leader, Elon Musk.
Optimize Your Investment Research with Spark
When reality stifles expectations, there’s little room for optimism. And that’s a big part of why Tesla’s shares have massively underperformed the broader market this year. On one hand, bulls argue that Tesla’s growth story lies in autonomous vehicles and robotics rather than just its EV business. They also point to CEO Elon Musk’s ties to the Trump administration as an important step toward these plans. On the other hand, bears counter that Tesla’s main revenue source—its EV sales—is losing market share, the CEO is distracted and hurting the brand, and the company’s valuation doesn’t match reality.
Given these arguments, I subscribe to the bullish perspective because TSLA is as much a long-term macro-political play as it is a stock investment requiring strong fundamentals and a healthy balance sheet. Very little of Tesla’s current value is tied to its EV sales. As a disruptive player in the AI era and with a CEO deeply connected to the U.S. government, Tesla has the potential to accelerate the implementation and regulation of autonomous vehicles, as well as obtain a first-mover advantage in lucrative future markets.
While it’s still hard to quantify and big-picture future pay-offs don’t fit neatly into current spreadsheets, I think Tesla remains a company that could easily surpass a trillion-dollar valuation in the coming years as its technology is rolled out across the U.S. In fact, any current weaknesses, like the ones we’re seeing now, present buying opportunities as recurring price declines shake out nearsighted investors.
The Catalyst Behind Tesla’s Struggles
Tesla’s stock has significantly underperformed broader market indices this year. But why is the stock price falling? There are several reasons, with the most notable one being declining sales.
Declining Sales in Major European Markets: Tesla’s sales have declined in key European markets. In February, sales in Germany plummeted 76%, following a 59% drop in January. France saw a 44% drop in February, while sales in the Netherlands and Norway fell by 34% and 45%, respectively. In the UK, where Tesla has the highest deliveries on the continent, sales increased by 7.7% in February, even after a 12% drop in January. Notably, monthly EV registrations in Europe’s largest battery electric market hit a record high in January. In short, Tesla is losing market share, and it’s becoming increasingly clear that customers are opting for other models over Tesla’s.
Declining Sales in China: Tesla’s sales in China dropped 11.5% in January and fell by 49% in February, marking the lowest monthly sales since July 2022. This came when Tesla’s biggest rival in China, BYD, saw its sales skyrocket by 161% in February. What’s worrying here is that Tesla is losing market share in China, the largest EV market in the world and arguably the only place where EV demand is accelerating.
Tesla’s High Volatility: Tesla is a high-beta stock, with a monthly average of 2.5 over the past five months. This means Tesla’s stock is 2.5 times more volatile than the S&P 500 index when the index goes up or down. As the S&P 500 has fallen by 6% since February 19 (when it peaked for the year), Tesla’s stock has been hit harder by the broader market downturn, especially with the uncertainty surrounding Trump’s tariffs and a more protectionist economic approach.
CEO Musk’s Distractions: Beyond concerns about the EV business itself, one of the main worries for Tesla’s investors is Elon Musk’s increasing number of commitments. From his social media pet project, X, to SpaceX and his close ties with the Trump administration, Musk’s attention is thin. His involvement with Trump has led to brand-related issues and could even risk some of Tesla’s sales. It’s no coincidence that we’ve seen such a downturn in the company’s share price.
When Reality Defies Expectations
Tesla’s recent weak sales numbers for the first two months of the year are a reality check for investors, especially considering that the EV business still makes up most of the company’s revenues. The reality behind the numbers is starting to sink in. EV sales, Tesla’s core money-maker, are declining, while rival sales are on the rise. Given this, it’s unsurprising that Tesla’s stock has felt the brunt of bearish sentiment.
Many market participants justify Tesla’s nearly triple-digit forward earnings multiple by pointing to its potential to disrupt mobility, particularly with autonomous vehicles, robotaxis, and robotics. This optimism is primarily the result of CEO Elon Musk’s ability to overpromise Tesla’s achievements, often throwing out massive numbers that get investors excited and buying into the dream.
For example, some argue that Tesla’s EV business shouldn’t be the main factor in the investment thesis. Perma-bull analyst Dan Ives from Wedbush believes that the current sell-off in Tesla stock will actually turn into a generational opportunity in a few years. According to Ives, around 90% of Tesla’s value will come from autonomous tech and robotics (Optimus), especially with Musk’s position in the Trump administration, which could help push forward autonomous deregulation.
The upcoming launch of Tesla’s unsupervised Full Self-Driving (FSD) in Austin this June is a key moment in the company’s shift toward autonomous vehicles. This could be an essential catalyst for reviving Tesla’s stock, at least in the short to mid-term.
What is the Price Target for Tesla in 2025?
Right now, there’s no clear consensus on whether the expectations around FSD and robotics should outweigh the current reality Tesla is facing, at least in the next twelve months. Among the 35 analysts covering TSLA shares, 13 recommend a Buy, 11 recommend a Hold, and another 11 recommend a Sell. TSLA’s average price target over the coming twelve months is $340.31 per share, indicating an upside potential of 53% from the stock’s current price.
Tesla’s Future Goes Beyond Just EVs
I’m not a reality denier, and Tesla is struggling to justify its valuation based on the current growth pace of its EV business. However, as AI becomes an increasingly concrete reality, I believe it’s only a matter of time before autonomous vehicles and robotics begin to play a more significant role in society. Tesla is uniquely positioned to simultaneously capitalize on several key markets (including robotics).
This means TSLA could become as disruptive in AI and manufacturing as Google is in internet search and digital marketing. For investors with big-picture thinking caps and a stalwart long-term view that cannot be jostled by short-term noise, TSLA is progressing the kind of generational transformation that doesn’t fit into traditional valuation metrics. For them, having Tesla in your portfolio is a future-proof no-brainer based on a thesis boosted by Musk rubbing shoulders with the U.S. political elite and costing up to Donald Trump.
Questions or Comments about the article? Write to editor@tipranks.com