Why Tesla’s bumpy ride may not be over

It wasn’t that long ago — Dec. 17, in fact — that Tesla seemed to be riding high.

On that date its shares hit an all-time high of $484.79. Its market capitalization exceeded $1.5 trillion. The election of Donald Trump seemed to put the company’s leader, Elon Musk, in the driver’s seat of efforts to push U.S. government policy in directions that would put more profits in Tesla’s pockets.

Today, not so much. Tesla shares have fallen by more than half since those heady days of mid-December, and its market capitalization with them; in midday trading Thursday, they’re priced about $236 and the market cap sits at about $760 billion. Tesla’s overall sales fell by 1.1% last year over the previous year, its first such decline since 2011— and they might have fallen further if not for 0% financing, low-priced leases and free charging for buyers offered in the fourth quarter of 2024.

Several factors may account for the sales declines. As my colleague Caroline Petrow-Cohen reported, one is the increasing popular distaste for Elon Musk in the wake of his rampage through the federal government as head of his Department of Government Efficiency, or DOGE, and his openly right-wing and antisemitic statements and tweets.

The thrill of having Musk in the inner circle of the Trump administration has lately fallen flat. Rather than Musk’s access to the White House being an asset to the brand, it has begun to look like a lead weight.

That’s largely because of popular distaste for Musk’s role at DOGE, the quasi-governmental agency that has run roughshod through government programs, causing chaos in its wake. Tesla shares have lost money in nine consecutive weeks since the beginning of this year. Since Trump’s Jan. 20 inauguration alone, they’re down 40% in value.

But Tesla’s ills aren’t entirely due to Musk’s government role. The company faces ever-stiffer secular headwinds, including competition from legacy automakers moving into the electric vehicle market, along with EV startups such as Rivian.

Tesla’s reputation for cutting-edge technology is eroding; the company’s largest Chinese rival, BYD, just announced a new charging technology it says can add about 250 miles of range to an EV in five minutes — even less than the time it takes to fill a conventional car’s gas tank to the same level. Tesla says its top-of-the-line superchargers need 15 minutes to add 200 miles of charge.

Tesla’s product lineup is looking increasingly antique in car market terms. A refresh of its top-selling Model Y crossover was unveiled in January, but deliveries are just beginning, and only in China, with plans to continue on to Australia and south Asia. When the car will become available in the U.S. is unclear.

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Tesla’s other new model, the clunky and widely disdained Cybertruck, is beginning to look like a lemon. On Thursday, regulators ordered a recall of all the trucks — the eighth recall since its introduction in 2023 — this time to address the tendency of metal trims along both sides to come off at highway speeds because they’re only glued on, causing a traffic hazard. Some workers on the Cybertruck assembly line were recently reassigned to the Model Y, an indication that sales are disappointing.

Meanwhile, investors have been growing irked by Musk’s habit of reassigning engineers from Tesla to his other ventures, such as SpaceX and the artificial intelligence company he calls X.AI.

They weren’t all that happy about this sort of cross-pollination years ago, when Musk orchestrated Tesla’s acquisition of his failing SolarCity company as a rescue operation in 2016; the move was waved through by the boards of both companies, which were largely under his control, but it sent Tesla shares down by 10%. More recently, as his distractions have multiplied, investors are expressing open consternation.

“Tesla is going through a crisis and there is one person who can fix it ... Musk,” Dan Ives, a technology analyst and long-term bull on Tesla, tweeted Thursday. “Investors need to see Musk take a step back and balance his DOGE and Tesla CEO roles.” (Ives remains bullish on Tesla, setting a price target of $550.)

In recent days the turnabout in Tesla’s fortunes has left Musk and his political supporters sounding ever more febrile. On March 11, Trump staged what resembled an infomercial for Tesla, showcasing its models on the White House lawn and praising its quality in terms that sounded as if they were written by its advertising department. The shares briefly rallied, but soon resumed their slide before rising slightly through Friday).

On Wednesday, Commerce Secretary Howard Lutnick made an ethically questionable pitch for Tesla during an appearance on Fox News. “Buy Tesla!” he said. “It’s unbelievable that this guy’s stock is this cheap. ... I mean, who wouldn’t invest in Elon Musk, you gotta be kidding me.”

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Lutnick didn’t disclose during that appearance that the investment firm he headed before taking his government job, Cantor Fitzgerald, held about 740,000 shares of Tesla as of Dec. 31, according to its latest government disclosure.

The holdings were valued that day at $403.84 each, or about $299 million. Their value has declined to about $174.8 million as of Thursday’s close.

The same day as Lutnick’s appearance on Fox, a Cantor Fitzgerald securities analyst upgraded Tesla shares to “overweight.”

Lutnick stepped down as chairman and chief executive of the firm when he was confirmed as Commerce secretary last month, but it remains a family enterprise: His son Brandon became chairman and his son Kyle was named executive vice chairman.

Cantor Fitzgerald told me that Lutnick “no longer has any role - formal or informal” at the firm and that “all decisions regarding individual stock ratings and analysis are made solely by Cantor’s Equity Research department.”

The firm also asserted that the holding of Tesla shares it reported in its quarterly disclosure to the Securities and Exchange Commission of stocks over which it possesses investment discretion involves “either hedging customer transactions or routine market making activity.”

I also asked Tesla to comment on numerous issues, but got no reply.

During his appearance Tuesday on Fox News, Musk showed that the proliferating negativity about his government role is getting under his skin. “It’s really come as quite a shock to me that there is this level of, really, hatred and violence from the Left,” he told Sean Hannity. He ascribed it to resentment of his effort to cut fraud in government programs through DOGE.

“It turns out when you take away people’s, you know, the money that they’re receiving fraudulently, they get very upset,” Musk said. “And they basically wanna kill me because I’m stopping their fraud and they wanna hurt Tesla, because we’re stopping the terrible waste and corruption in the government.” As it happens, the entity’s claims to have unearthed fraud in Social Security and elsewhere have generally evaporated under scrutiny.

Given all that, it’s worth taking a closer look at Tesla’s parlous condition. To be fair, the company has faced what even Musk has described as near-death moments in the past and survived, even thrived. Investors still award it a stratospheric valuation of more than 115 times earnings. Compare that with Toyota, the world’s leading automaker, which has a price-earnings multiple of only 7.55. And Tesla still dominates the EV market.

Nevertheless, the company’s sales are crashing worldwide. In the European Union they fell off a cliff in 2024, to 7,517 vehicle registrations from 15,130 the year before. The drop was especially steep in Germany, where Musk irritated voters by throwing his electoral support behind the extreme-right neo-Nazi party Alternative for Germany. There, new Tesla vehicle registrations fell by 76.3% in February from the same month a year earlier— that is, to 1,429 from 6,029.

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Even in California, the company’s top market, sales fell last year, with new registrations down nearly 12%, to 203,221 from 230,010 in 2023. Tesla’s share of the California market for zero emission vehicles fell to 52.5% from more than 60%.

In all these jurisdictions, Tesla’s sales declines came as overall sales of electric vehicles rose.

Tesla’s automotive revenues have fallen in tandem, with sales revenues declining by 7.7% last year, to $72.48 billion from $78.5 billion in 2023. The company made up some of the decline by marketing regulatory credits, which can be purchased by automakers to cover their obligations to meet low-emission quotas when they don’t sell enough low-emission vehicles of their own to meet the standards. Since Tesla sells only zero-emission vehicles, it has regulatory credits to spare. Last year it raised nearly $2.8 billion through sales of the credits, up from about $1.8 billion in 2023.

Of more concern to Wall Street, Tesla’s profit margin on automobiles fell to 18.4% last year from 19.4% in 2023, and sharply down from 28.5% in 2022.

A little-noticed consequence of the decline in Tesla’s share price — but one that could magnify any further downdraft — is that according to Tesla’s most recent proxy statement, Musk has pledged about one-third of his 715 million shares as collateral for personal loans, including those he took out to finance his acquisition of Twitter (now X) in 2023. The company has cited as a “risk factor” that if the shares decline to a certain level, his lenders could force him to sell some of those shares to cover his debt.

“Any such sales could cause the price of our common stock to decline further,” the company said in its 2024 annual report. Because the terms of his collateral pledge aren’t known, the stock price at which Musk might face margin calls on the loans is unclear, though market speculation has put it at about $100. Whatever that price, the decline in Tesla’s share price means that Musk’s headroom has shrunk materially since mid-December.

Put it all together, and even after its recent fall, Tesla stock still looks overvalued — it’s “priced for perfection,” as Wall Streeters might say, and nothing about Tesla’s future looks anything like perfect.