Should you invest in Tesla?

The past few months have been a car crash for Tesla’s share price performance, with Donald Trump’s tariffs, bad publicity and weak sales all sending the stock lower.

The impacts will have been felt by a huge number of investors. Tesla has consistently ranked as one of the most popular stocks on investment platforms in recent years. Those who hold a global or US equity tracker in their ISA, pension or investment account will almost certainly have exposure to the stock too.

More bad news came on 21 April, when the e-vehicle giant unveiled worse-than-expected first-quarter results. Net income plunged 71% year-on-year to $409 million, while adjusted income was down 39% at $934 million.

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This translated to adjusted earnings per share of $0.27, well below the $0.44 figure forecast by analysts at Zacks.

The stock rose 4.6% the day after the earnings were published, as chief executive Elon Musk promised to spend more time at Tesla and less time playing politics. Much of the disappointment had also been priced in beforehand, after ugly first-quarter sales figures were published at the start of April.

The rise has done little to counteract the losses of recent months. As of market close on 23 April, Tesla’s share price is down 48% from its December peak.

“Tesla’s problems are mounting up. Competition has been fierce, the Cybertruck isn’t pulling its weight versus initial expectations, and there has been a backlash against the Tesla brand because of Elon Musk cosying up to the Trump administration,” said Dan Coatsworth, investment analyst at AJ Bell.

A recent MoneyWeek flash poll with 335 respondents showed 68% of people would no longer consider buying a Tesla as a result of Musk’s behaviour.

“Tariffs threaten to cause further upset to Tesla’s earnings given the company imports around 70% of the parts it needs for its US factories,” Coatsworth added. “Potential disruption to global supply chains as a result of Trump’s trade war also creates risks to Tesla’s cost structure and ability to meet demand.”

Impact of Trump’s tariffs on Tesla

Trump’s tariffs are bad news for car manufacturers – and Musk’s close links with Trump have not granted Tesla immunity.

All of the vehicles Tesla sells in the US are made on American soil, but large parts of its supply chain are imported from elsewhere, including China, Mexico and Canada.

Trump has imposed tariffs of up to 145% on Chinese imports. Mexican and Canadian goods covered under the US-Mexico-Canada free-trade agreement are exempt from tariffs, but this does not include automobile parts, which are being taxed at a rate of 25%.

Tesla’s chief financial officer Vaibhav Taneja said this would “have an impact on profitability”.

Tesla’s energy business – a fast-growing area that was responsible for 14% of its revenue in the first quarter – will also be heavily impacted. The company sources battery cells from China and shifting to other suppliers based elsewhere will take time.

Tariffs will also make it more expensive for Tesla to launch manufacturing or expand existing lines. As capacity is limited in the US, the company brings equipment in from other countries, including China.

Musk was careful not to criticise the president during Tesla’s earnings call this week, but he did say: “I've been on the record many times saying that I believe lower tariffs are generally a good idea for prosperity… I’ll continue to advocate for lower tariffs rather than higher tariffs.”

When will robotaxis hit the road?

Against a disappointing earnings backdrop, Musk looked to divert investor attention by focusing his gaze firmly on the future – and autonomous vehicles.

There is a lot of excitement in the industry about the possibilities that driverless cars could unlock, but there are still questions Tesla needs to answer before investors are fully convinced.

Musk’s long-term vision is for every Tesla to have the option of being a robotaxi. The idea is that owners could make money by letting the company use their car as a taxi when they are at work, on holiday or asleep. Austin will be used as a test city, possibly as soon as June this year, with around 10 or 20 vehicles operating on day one before being scaled up.

Musk says this part of the business could start to “move the financial needle” in the “next year or two”, potentially even as soon as the middle or second half of 2026. However, this stance is perhaps overly optimistic.

“Tesla has made numerous promises about full autonomy over time, from coast-to-coast travel by 2019 to the introduction of robotaxis by 2020. These timelines have been consistently delayed or unfulfilled,” said Stephanie Brinley, principal automotive analyst at S&P Global Mobility.

Trust and regulatory challenges will be two big hurdles. Tesla has already experienced challenges in this area, including probes from the US National Highway Traffic Safety Administration following reports of crashes involving autonomous features.

Brinley also thinks that Tesla’s “black box” technology will create hurdles. In artificial intelligence, a black box is a system where the inputs and outputs are visible, but the decision-making process is not transparent.

“S&P Global Mobility views Tesla's 'black box' issue as a major impediment to success, stemming from the lack of transparency and interpretability in end-to-end AI systems,” she said. “Without clear interpretability, explaining and validating the system’s decisions becomes difficult, raising both technical and regulatory concerns.”

Musk argues that once Tesla vehicles are operating autonomously in Austin, the business is highly scalable, as the “vast majority” of the Tesla fleet is “capable of being a robotaxi or robotic taxi”. Regulatory concerns – not to mention nuances from state to state and country to country – could dent this scalability.

Should you invest in Tesla?

Tesla has had a rough ride in recent months, but it is not all bad news. Part of Tesla’s sales dip (down 13% year-on-year in the first quarter) can be explained by its overhaul of the best-selling Model Y. The existing version is being phased out before an updated version is rolled out.

“This quarter was always going to be tough. For a carmaker, plant utilisation is critical, and taking production offline to refresh the world’s best-selling vehicle was bound to leave a mark on the financials,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

More affordable models are also in the pipeline going forward, and there are hopes that this will boost sales. This can’t come soon enough, given that rival firms with cheaper cars are starting to eat away at Tesla’s market share.

Consumer confidence has also taken a knock given the tough economic backdrop. Tesla vehicles are generally considered a luxury item, but a cheaper model could have broader market appeal.

“More affordable models appear to be streamlined versions of the existing Model 3 and Model Y. It’s not quite the disruptive refresh some had hoped for, but if these versions can unlock new customer segments, it could be a net win – especially for maximising output at current facilities,” said Britzman.

Despite recent challenges, Tesla remains popular with DIY investors. It was the third best-selling stock on retail platform Interactive Investor in March. In late April, AJ Bell reported that three times as many customers had bought Tesla shares than sold them over the past month.

“Opportunistic investors buying on the recent dip 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,” Coatsworth said.

That said, investors should still exercise some caution. Tesla’s share price might have fallen significantly, but it is far from a bargain. The stock is currently trading at 93 times its forecast earnings, according to data from Yahoo Finance (24 April).

By this metric, it is the most expensive member of the Magnificent Seven. The next highest price-to-earnings ratio is Apple’s, at 28 times its forecast earnings.

The share price is now roughly in line with Morningstar’s fair value estimate of $250, but the ratings agency still gives the stock a “very high” uncertainty rating. It has also reduced its near-term profit forecast as a result of Trump’s tariffs.

UBS, on the other hand, recently lowered its price target for the company from $225 to $190. The investment bank has rated the stock a “sell”.