Amid the market volatility sparked by Donald Trump’s on-off tariff plans, during which the benchmark S&P 500 index fell by 3.1% last week and the Nasdaq entered ‘correction’ territory, no stock has been more badly hit than Tesla.
Shares of Elon Musk‘s electric vehicle maker have fallen for seven straight weeks, the longest losing streak since the company floated on the stock market 15 years ago, wiping out more or less all of the gains it enjoyed after Mr Trump was elected US president in November last year.
Since Tesla shares peaked at $479.86 each on 17 December, they have fallen by 45%, wiping more than $800bn from the company’s stock market value.
To put it in context, that sum is roughly equivalent to Poland’s annual economic output.
And there may be worse to come. Wall Street analysts have been rushing to downgrade Tesla stock.
A quarter of the 40 brokerages covering the stock currently rate it a “strong sell” with one of them – Guggenheim Securities – suggesting the shares could fall another 30% from here.
Reasons for share price drop
There are a number of reasons behind the fall. Those who deplore Mr Musk’s political views and his close proximity to the Trump administration will doubtless cite this as the key factor.
It has certainly played a part. Mr Musk’s recent antics, such as wielding a chainsaw on stage at a recent political conference and making a gesture on stage that some interpreted as a Nazi salute, have not endeared him or his companies to a swathe of the public both in the US and beyond.
There have been protests and outbreaks of vandalism at Tesla dealerships and EV charging points across the US while, in both Europe and China, Tesla orders in January were down 45% year on year.
Admittedly, a lot of the people staging protests at Tesla properties are unlikely to have been would-be buyers of the company’s products, but the bigger problem is that Mr Musk now appears to be alienating customers who were previously loyal to the brand – as shown by the popularity, in the US, of Tesla bumper stickers with messages such as “I bought this before Elon went crazy” and “Anti-Elon Tesla Club”.
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Is Musk distracted?
Conversely, some investors who wholly approve of the work Mr Musk is doing for the Trump administration may also have concerns, notably that it is proving too much of a distraction from the day job of running Tesla.
Even before Mr Musk took the wheel at the US Department Of Government Efficiency (DOGE), there were already fears that he was being too distracted by his private companies, including the social media platform X, the aerospace and defence contractor SpaceX and his artificial intelligence business xAI.
X, on which lies peddled by the Kremlin about Ukraine are regularly amplified, may also be adding to the damage being done to the Tesla brand.
But Mr Musk’s association with the Trump administration is only part of the reason for the recent declines.
Tesla shares could have been over-priced
Another key factor is that shares of Tesla were arguably over-priced to begin with.
In the two weeks following the US presidential election, Tesla shares shot up by 32%, adding $250bn to its stock market value.
To put that into context, that gain was equal to the entire stock market value of Toyota, the world’s next biggest carmaker after Tesla.
At the time its shares peaked, Tesla shares were trading at 112 times expected earnings, compared with the 25 times or so that the S&P 500 was trading at and higher even than the company’s average over the last five years of 93.
Again, to put things in context, Ford shares are valued at just eight times prospective earnings.
That exotic rating reflected the superlative growth prospects previously accorded to Tesla, in particular Mr Musk’s pledges to launch a new cut-price electric vehicle and a fully autonomous ride-hailing service.
Competition from China
But investors are now reappraising those growth prospects as Tesla loses share of the electric vehicle market to rivals, such as China’s BYD, which is also seen as outpacing the company on self-driving vehicle technology.
News on Tesla’s planned new low-cost model remains elusive and, until it is launched, critics believe it has little hope of building share in burgeoning markets such as India.
Mr Musk always wanted Tesla to be seen as an AI and robotics company rather than an electric vehicle maker and that was part of the bull case for the stock.
Yet there are now fears that the company is investing too much in such projects and on its much-criticised Cybertrucks.
Another concern is that Tesla’s core operations may be misfiring.
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Results published at the end of January revealed that operating profits for the final three months of 2024 were down 23% on the same period a year earlier – which Tesla blamed on lower average selling prices on each of its Model 3, Model Y, Model X and Model S lines.
For the full year, deliveries of new vehicles were down on 2023, the first year-on-year fall the company has suffered.
And the operating margin, partly reflecting the sums Tesla is investing, were also lower.
It all adds up to an unpleasant cocktail for investors.
