Is Elon Musk about to crash Tesla shares?

Sales are falling, confidence is crumbling and Elon Musk’s attention is apparently on anything but Tesla. Will 2025 be the year of a huge Tesla correction? Or is this just a road block on the way to more accelerated growth?

When Henry Ford set up factories for the Model T in Great Britain and Germany a century ago, he was dreaming of a world-wide automotive empire. In many respects, Tesla is Ford’s 21st century equivalent. The company has a first-mover advantage for electric vehicles, a charismatic CEO and global aspirations.

While Tesla only opened its first factories in China and Germany in 2019 and 2022, it has already built up a notable international presence. Approximately 50% of sales originate in North America, 30% in Asia–Pacific and 13% in Europe, according to FactSet estimates quoted by the Wall Street Journal.

The road to becoming a fully fledged global player can be bumpy, as recent months have reconfirmed. On Wall Street, Tesla lost nearly half its market value at its lowest. Panic ensued: 15% in the red one day, then 10% in the black another. One explanation for the market’s mood swings is Musk’s political antics, which echo Henry Ford’s own political controversies. There’s more going on, though.

1. Political activity alienates fans

Few brands are as closely linked to their CEO as Tesla. For the longest time, that greatly benefited this pioneering EV company. Since Elon Musk has become more politically active, however, the opposite applies. Many investors initially thought his political adventures as self-declared bureaucracy-basher-in-chief at DOGE would serve Tesla well. In December, shares even reached record highs, achieving a market value of more than USD 1,500 billion.

Not everyone is as happy about Musk’s bromance with Donald Trump. For early adopters – often eco-conscious and socially progressive individuals – this feels like a betrayal. Ross Gerber, one of Tesla’s first major investors and still a shareholder, says Musk has ‘somehow managed to marry the world’s best product with the world's worst marketing’.

Particularly in Europe, Musk and Tesla appear to have fallen out of favour. New registrations of Tesla cars in early 2025 nearly halved compared to the previous year. Sales of Tesla cars fell by 44% in February, even though overall sales of electric cars in Europe increased by 25% that month. In Germany, where Musk showed support for the AfD, sales even plunged by 76%. The United Kingdom is apparently the big exception, recording an additional 21% increase in February. Musk has shown a clear interest in Nigel Farage’s Reform UK party there.

Of course, Europe remains a relatively small market for Tesla. Tesla has also been struggling with its image in the US. Similar to in Europe, Tesla showrooms are being targeted by protestors and bumper stickers declare ‘I bought my Tesla before Elon went nuts’. Sales figures for February indicate a 10% contraction compared to a year ago, following an 11% contraction in January.

One explanation for the lower sales is that an update to the Model Y is imminent, causing potential buyers to delay their purchase. However, this does not fully explain the bloodbath. Elon Musk is also busy in Washington, is the CEO of both Tesla and SpaceX and the CTO of X (formerly Twitter), is involved in various other companies (Neuralink, The Boring Company and xAI) and has 14 children, raising doubts as to whether he has enough time to focus properly on his role at Tesla.

2. BYD: Chinese countermove

In China, the world’s largest market for EVs, Tesla must deal with yet another challenge: fierce local competition. BYD, a Chinese car manufacturer that overtook Tesla as the world’s largest EV manufacturer in 2023, is claiming an increasingly large share of the action. In February, BYD achieved a market share of 29% for the Chinese electric vehicle market (including hybrids), while Tesla only made it to seventh place at 4%. In other words, in Tesla’s most important growth market, BYD is dominating market share by a factor of seven. Throughout 2024, Tesla had a Chinese market share of 6%.

Last year, almost half the cars sold in China were EVs. Chinese brands are constantly launching new vehicles and innovative technologies. For example, BYD introduced a new battery technology this spring that will enable cars to recharge nearly as fast as conventional refuelling. To Chinese buyers, known for their lust for the latest innovations, Tesla’s Model 3 and Model Y are starting to look a little ‘staid and obsolete’ compared to local rivals’ futuristic designs and features.

To remain competitive, Tesla implemented aggressive price cuts in China. This strategy triggered an actual price war. BYD and other players followed suit with their own discounts, making electric cars increasingly affordable for Chinese consumers. That’s good news for sales volumes, but it also affects Tesla’s profit margins and those of the industry as a whole. Where Tesla once enjoyed high margins on its cars, these are now coming under pressure due to the discounts and incentives required to win customers. In addition, Tesla has only a few models in its line-up, while Chinese competitors are covering every niche – from cheap urban EVs to luxury SUVs – at competitive prices.

3. Disappointing sales inspire valuation doubts (again)

Tesla has been growing for years, with continuously rising sales, but 2024 marked a turnaround. For the first time since 2011, the numbers of Tesla cars delivered worldwide fell year-on-year. Tesla sold around 1.79 million vehicles in 2024, 1% less than in 2023. That is still a huge amount, but also a clear sign that the company may have reached the limits of its explosive growth. By comparison, Chinese rival BYD sold 4.3 million cars last year, 41% more than in 2023. At the same time, Tesla went through several quarters in 2024 with sales figures that fell short of its ambitious targets, threatening analysts’ confidence. Last year Tesla shelved its plans to produce 20 million cars annually by 2030.

Stagnating growth and worries about Musk as an individual resulted in a substantial market correction. Since the beginning of January 2025, almost a third of Tesla’s market value has evaporated (situation on 24 March). What’s more, shares are still anything but ‘cheap’ after previous years’ huge rallies. Even after the recent drop, the company is still worth more on the stock market than the world’s nine largest car manufacturers combined. This despite Tesla’s negligible production numbers (fewer than 2 million cars/year), compared to these traditional manufacturers’ combined output (around 44 million cars/year in combination). That mismatch between valuation and reality is (again) making some investors nervous.

4. Car manufacturer or AI/robotics/tech business?

One big concern is how Tesla should be valued: as an automotive manufacturer or as a technology company. The market price discrepancy is also due to investors seeing Tesla as more than ‘just’ a car company. Elon Musk has emphasised repeatedly that Tesla is, in essence, a tech company that happens to make cars. According to Musk, Tesla isn’t just an electric car company. It also sells software (e.g. self-driving functions), energy applications (Powerwall batteries, solar energy) and eventually, maybe even humanoid robots. No wonder so many investors are willing to pay a substantial future premium for Tesla.

Analysis shows the extent of that premium: Tesla’s electric car business (actual vehicle sales) is estimated to account for less than a quarter of its market value, meaning most of the valuation is being based on future opportunities in areas such as autonomous driving and robotics. Investors are investing in products and services that are largely still under development. They will need to be patient, too. Musk promised that Tesla’s self-driving taxis are set to change the world and has repeated this promise every year since 2016, without any taxis ever appearing on the road. That promise helps keep the dream alive that one day, Tesla will make its money not so much from selling cars but from offering mobility solutions (transporting passengers in autonomous Tesla cars) – just like a tech platform.

What this all comes down to: Tesla is balanced between two different identities. The company is a car manufacturer with all the associated cyclicity, but it is also a platform for innovative technology. This dualistic nature makes a valuation tricky. For investors, the important thing is to assess whether Musk’s promises are realistic and will produce results anytime soon.

5. Big Tech in 2025: from Mag 7 to Lag 7

Tesla isn’t alone in its fate. In recent years, Tesla was often named as one of the Magnificent 7, seven tech giants (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla) that have been dominating the equity markets.

At the beginning of 2025, the situation changed and nearly all these tech giants were subject to deep discounts. For Tesla, this rotation has two consequences. Firstly, a general headwind has disappeared. Automatic buying flows for Big Tech are weaker, so Tesla no longer rises along with the others. Secondly, investors are taking a more critical look at the individual stories. In a bull market where tech shares seemed destined to rise, perhaps investors were willing to ignore how pricey Tesla had become. Now that investors appear to be more selective, weaknesses may be punished more severely.

Challenges and potential for Tesla

Tesla appears to have reached a pivotal point. On the one hand, the challenges are piling up. Elon Musk’s political antics have caused reputational damage, scaring off certain customers. Competition, particularly from China, is threatening Tesla’s market share. Sales figures are under pressure. Share prices have dropped sharply and the market is taking a more critical look at Big Tech and therefore also at Tesla, making the previous growth premium less defensible. Looking at these factors, you could conclude that investing in Tesla has become much riskier.

On the other hand, Tesla remains a company with potential and unique strengths. It still has a technological edge in many areas. The company invests heavily in innovation, which may pay off in the long term. Furthermore, Tesla aims to tap into new markets such as India and the Middle East and to expand its product portfolio. Success is by no means guaranteed, but if Tesla does manage to deliver on its promises, by truly coming up with the first fully self-driving taxis, for example, the company may yet find its way.

For the time being, investors would do well to tighten their seatbelts. Tesla has arrived at a crossroads: the coming years will show whether the company finds it way back to the top or continues to spiral down – and Elon Musk will play a big part in that.

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