At the start of the year, Tesla’s share price was at an all-time high.
Elon Musk, owner of the electric vehicle giant, was coasting on the win of his ally Donald Trump, and investors were hedging their bets that soon-to-be-President Trump would enact policies in favour of Tesla and the billionaire’s other companies.
But with an astronomical fall in share price, tanking sales and shrinking profits, the reality for Tesla has been far different – and much of it is tied to Musk’s public-facing role in the controversial Department of Government Efficiency (DOGE).
Tesla stock once made up the majority of Musk’s wealth, but now it is reporting huge drops in profit. The decision to step away from DOGE may show that Musk is not immune to Tesla’s downfall.
Within one month of Musk’s appointment to DOGE, Tesla shares were down 16.5 per cent. Within two, Tesla’s share price was down 45 per cent from when Trump came into office.
And Musk himself has lost an estimated $149 billion in wealth since taking the helm at DOGE; at $301 billion compared to $449 billion, according to Bloomberg’s Billionaire Index.
Profits slashed
Tesla’s share price problems have been far from cosmetic. The business is facing significant headwinds, not least because of the intertwined reputation with its notorious leader.
In January and February, Tesla sales in Europe saw sudden dips, of 45 per cent and 39 per cent respectively year-on-year – despite steady growth in the European electric vehicle (EV) market.
The numbers behind this week’s latest earnings reports are, as expected, not pretty.
Quarterly profits of $409m contrasted starkly with last year’s $1.4bn figure for the same three months – and the 71 per cent drop represents the company’s lowest quarterly profits since 2020.
Actual vehicle sales reported this month were down 13 per cent to a little over a third of a million across the January to March quarter, with notable declines in China and parts of the US, while revenue of $19.3bn fell short of forecasts by more than $2bn and operating margins fell to 2.1 per cent.
“Earnings margin of 2.1 per cent is the lowest since Tesla approached break-even in 2019,” said Mamta Valechha, consumer discretionary analyst at Quilter Cheviot. “Free cash flow dipped to $660 million, but did not enter negative territory as capital expenditures were nearly halved compared to the prior year due to reduced investments.
“Tesla has [also] effectively removed its growth guidance for this year, no longer promising a return to growth in 2025.”
Additional factors affecting sales include competition from China’s BYD (Build Your Dreams), which undercuts Tesla on price, while frequent recalls of Tesla vehicles may also be doing little to boost confidence in the brand.
But it is impossible to ignore a major factor impacting its brand: Musk’s growing unpopularity.
Anti-Elon movement
Musk has made no secret of his increasingly controversial political viewpoints. From accusations of a nazi salute at the inauguration, to criticising Volodmyr Zelensky as “evil” over the war in Ukraine, it is easy to see how his actions have ruffled feathers.
As a result, a string of attacks have targeted Teslas in Europe and the US over the past few months, with clear anti-Musk messages.
Tesla owners have faced threats to sell their cars over “Nazi Extremism” in California, while even in the UK, campaign groups have applied pressure against Tesla cars and charging points.
Tesla shareholders are pushing back against Musk’s alignment with Trump; his decision to step partly away from DOGE indicates Musk is likely feeling the blowback himself.
Tesla exposed to tariffs
Investors may have hoped that Musk’s role in the administration would see carveouts for Tesla in Trump’s trade war. But in fact, the electric vehicle brand is far from immune.
Tesla manufactures its electric vehicles in the US, which makes it less exposed to 25 per cent automotive tariffs than foreign brands.
But the tariffs are not just on finished cars; there is also a 25 per cent levy on all imported automotive parts, and Tesla relies on many parts imported from China, in addition to Mexico and Canada: the company is dependent on imported lithium iron phosphate (LFP) batteries to fuel its EVs, in particular using Chinese manufacturer CATL to supply its factories.
And China’s new restrictions on rare earth minerals and magnets have also impacted other projects from Tesla such as its Optimus humanoid robots.
With Tesla dependent on batteries and rare earth products from China, the trade war will inevitably hit its supply chain.
Shares see boost despite performance
Following Tesla’s plummeting profits, it might have been expected that the share price could drop further – but the opposite has happened.
On Tuesday, the share price had risen 4.6 per cent; following the announcement of Mr Musk’s intentions to resume greater oversight of corporate rather than Capitol Hill activities, that trajectory continued.
Tesla shares are up more than seven per cent in pre-trading, set to open well above $250 per share – still a far cry from December’s peak.
Lowered expectations can explain part of it, as well as a broader desire from investors to see a bull run resume – from lower share price starting points.
“Tesla’s first-quarter delivery and production numbers were as ugly as its Cybertruck design. That meant expectations were rock-bottom in the run-up to its financial results and it’s why the shares didn’t tank upon release of the Q1 earnings,” noted Dan Coatsworth, investment analyst at AJ Bell.
“Certain individuals are spotting an opportunity and might take the view that Tesla’s significant share price decline has gone too far – they’re buying on the dip, hoping for a bounce-back and might view the recent sell-off as a once-in-a-lifetime chance to pick up shares in a previous stock market darling on the cheap. After all, the fundamentals still give bulls something to get excited about.”
Not everyone is quite as excited about those humanoid robots, self-driving taxis and energy storage products though.
“While Tesla is making progress on these initiatives, we believe the market and management commentary are overly optimistic about the timing. The narrative around Tesla’s stock and valuation remains heavily dependent on these future prospects,” Valechha cautioned.
It should also be noted, the uptick isn’t totally down to Tesla, Musk or anything to do with electrification – Trump’s China tariff climbdown has sent the S&P 500 two per cent higher in pre-trading, with the likes of Amazon and Nvidia up four per cent each.
Market volatility comes as standard in this second Trump term, and for Tesla which inadvertently became a crossover company to the political arena, that continues to go double.
