The past few months have been a car crash for Tesla’s share price performance. Bad publicity, weak sales and a broader market selloff have sent the stock lower. Shares are down around 48% compared to December’s peak. The “Trump bump” is well and truly over.
It will come as bad news to many, with Tesla having 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.
Several factors have driven the selloff.
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Chief executive Elon Musk’s close ties to US president Donald Trump have proved unsavoury to many, particularly in recent weeks when Musk has led efforts to fire thousands of federal employees.
Musk’s associations with the political far-right including his endorsement of the AfD in the 2025 German elections have also sparked outrage – not to mention the controversy involving the apparent Nazi salute after Trump’s inauguration (something Musk has denied).
This has created a reputational crisis for Tesla, which has done little to help existing sales challenges. Last year, Tesla’s global sales fell on an annual basis for the first time in over a decade. Although we won’t see the official first-quarter sales figures until early April, initial industry data suggests 2025 hasn’t got off to a strong start either.
Last month, the European Automobile Manufacturers’ Association (ACEA) reported that only 9,945 new Teslas were registered in Europe in the first month of the year versus more than 18,000 the year before – a 45% drop. Just this week, investment bank UBS slashed its first-quarter delivery forecast from 437,000 to 367,000 vehicles globally.
Some existing owners are even selling up, both to avoid association with the brand and in response to news of Tesla-related vandalism. Data from Auto Trader, the UK’s largest automotive marketplace, shows that second-hand Tesla listings jumped by 70% in February compared to the same month a year ago.
Add a broader market selloff into the mix and you can start to understand why Tesla’s shares have taken such a knock in recent weeks. Trump's trade war has been ramping up and investors are starting to take the risk of a US recession seriously. Given their lofty valuations, Big Tech stocks have borne the brunt of the selloff – and Tesla’s share price was arguably more inflated than most after the post-election gains.
“So much for Elon Musk having the magic touch thanks to his new-found friendship with Donald Trump,” said Dan Coatsworth, investment analyst at platform AJ Bell. “It was wrong to think he’d get preferential treatment and by default so would Tesla.”
“The narrative has shifted back to what’s happening with Tesla in the here and now, and the picture is as ugly as the Cybertruck design,” he added. “Tesla is facing significant competition and an electric vehicle market that’s hit a speedbump with its growth. Negative broker comment from UBS weighed on already-weak sentiment, causing the shares to tumble once again.”
Tesla: should you buy the dip?
After recent share price losses, Tesla looks pretty close to Morningstar’s fair value estimate of $250 (the share price is around $249 at the time of writing). Remember that just a few months ago at December’s peak, the company’s shares were trading at around $480.
That doesn’t mean the stock is a “buy”, though. Morningstar recommends that investors wait for a larger margin of safety before considering an entry point. Meanwhile, UBS slashed its price target to $225 earlier this week, below the current market price.
Furthermore, Tesla is still trading at almost 90 times its expected earnings, making it the most expensive of the Magnificent Seven companies based on this valuation metric.
Against this backdrop, Rob Arnott, chairman at investment company Research Affiliates, has previously described Tesla’s market cap as “hard to square” with its fundamentals. “Tesla is the most valuable auto manufacturer in the world by far, yet its margins are middling and its market share growth has stalled,” he said in a research paper published this month.
On the one hand, investors have been willing to pay a premium for Tesla to gain exposure to its future earnings potential. Musk has fuelled this narrative, arguing that Tesla should be seen as an AI or robotics play rather than an autos company. However, this description speaks more to the company’s future ambition than the current state of play.
Musk has said he expects to start operating autonomous ride-hailing services in Austin this summer, but significant regulatory and safety questions remain. Crucially, there is also the question about how quickly the company will be able to scale this part of the business.
“While management’s long-term vision is to transition to robotics, autonomous driving software, and ride-hailing, we expect autos will remain the primary business through at least the rest of the decade,” said Morningstar strategist Seth Goldstein. He attributes the stock a “very high” uncertainty rating at present.
With this in mind, investors should remain cautious and focus on the fundamentals. Tesla still looks expensive given the current risks.
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