Tesla’s Stock Decline: Is Elon Musk’s EV Party Over?
Tesla’s stock has faced a staggering decline of nearly 50% within the last three months, leaving investors questioning whether the electric-vehicle giant led by Elon Musk is still overpriced. The company’s market capitalization has dropped by 45% since reaching an all-time high of $1.5 trillion on December 17. This plunge has erased much of the gains Tesla made after CEO Musk actively supported the election victory of U.S. President Donald Trump.
What’s Behind Tesla’s Stock Decline?
The fall in Tesla’s stock can be attributed to several factors:
1. Falling Sales and Profits: The company has reported declining vehicle sales and reduced profits, causing investor confidence to wane.
2. Political Controversy: Musk’s involvement in U.S. politics, including mass firings of government workers as a senior Trump advisor, has fueled protests and concerns about his focus on Tesla.
3. Overvaluation Concerns: Despite Tesla’s electric-vehicle business accounting for nearly all of its revenue, it represents less than a quarter of its stock-market value. The remaining valuation is built on hopes for autonomous vehicle technology that has yet to materialize.
4. Investor Skepticism: Analysts have warned of "irrational exuberance," with the company’s stock remaining divorced from fundamentals. Investors are questioning how long Tesla’s valuation can remain inflated without tangible results.
The Robotaxi Pivot
Tesla’s valuation once peaked at over $1.2 trillion in 2021, largely driven by the success of its Model 3 and Model Y. However, Musk has shifted his focus from mass-producing affordable EVs to developing a robotaxi network.
Despite Tesla’s ongoing promises, including launching autonomous ride-hailing services by June in Austin, Texas, the technology is far from being road-ready. Additionally, lawsuits and federal investigations into accidents involving Tesla’s Autopilot and Full Self-Driving systems are raising red flags about the company's technological promises.
Competition and Market Challenges
The core EV market is becoming increasingly competitive. Tesla’s aging models 3 and Y have seen price cuts due to sluggish global demand, especially in China where cheaper alternatives are gaining popularity. The only new model launched since 2020, the Cybertruck, has also underperformed, selling just 38,965 units last year compared to Musk’s initial prediction of 250,000 units by 2025.
Political Headwinds
Ironically, the political influence Musk once leveraged to boost Tesla’s growth could now become a liability. President Trump, whom Musk supported, has called for the elimination of EV subsidies—policies that have significantly contributed to Tesla’s financial success.
What’s Next for Tesla?
While Tesla continues to trade at high premiums, many investors remain captivated by Musk’s promises of an AI-driven future with robotaxis and humanoid robots. However, the widening gap between Tesla’s real-world performance and the ambitious projections made by Musk has prompted some investors to be cautious.
Tesla’s stock remains a high-risk, high-reward investment. The current decline reflects broader market concerns, including political risks, operational struggles, and increasing competition. Whether Tesla can live up to its lofty valuation depends on its ability to deliver the promised technological breakthroughs that have yet to materialize.