Tesla (NASDAQ:TSLA) is one of the most popular stocks on DIY investment platforms. Data from Interactive Investor reveals it was the third most-purchased investment on the platform last month. However, sales of the EV giant’s cars have nosedived in Europe so far this year, which raises the question: is the case for investing in Tesla starting to wane?
Tesla’s European sales were down more than 45% year-on-year in January, according to the European Automobile Manufacturers’ Association (ACEA). Just 9,945 new units were registered in the region in the first month of the year, versus more than 18,000 a year ago.
In terms of market share, the number of Teslas registered has fallen from 1.8% to 1%. This is despite the fact that battery-electric vehicles made up 15% of automobiles registered in January, up from 10.9% a year ago.
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Reports suggest chief executive Elon Musk’s politics could be partly to blame. Musk played a prominent role in US president Donald Trump’s election campaign, before being appointed in an advisory capacity as part of the new Department of Government Efficiency (DOGE).
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Musk has been embroiled in several controversies, including endorsing the far-right AfD in the 2025 German elections. He was also widely interpreted as doing a Nazi-style salute at an event after Trump’s inauguration – something Musk has denied.
In a survey of 1,000 people conducted earlier this month, e-vehicle website Electrifying.com found that 60% of car buyers would be put off buying a Tesla as a result of Musk’s behaviour and reputation. This included both current EV owners and those planning to switch to an EV in the future.
The survey also showed that 61% of EV owners and 56% of potential buyers would be open to buying from a Chinese brand. Tesla’s greatest competitor is Chinese car company BYD, and the latest industry data suggests it is snapping at Tesla's heels. BYD delivered 1.76 million battery electric vehicles in 2024, only slightly behind Tesla’s 1.79 million.
Despite this, other factors are also at play and could have contributed more meaningfully to Tesla's dip in sales. Analysts have pointed out that customers could be holding off from making a purchase while they wait for the upgraded Model Y to be released in the spring. Likewise, the release of a refreshed Model 3 at the start of last year may have flattered the figures from a year ago when making the comparison.
Commenting on the latest figures, Morningstar strategist Seth Goldstein told MoneyWeek: “January is typically a slower month for auto sales, however, a 45% decline versus a year ago is likely driven by multiple factors. First, the current Tesla lineup is older, so customers may be waiting for the new Model Y and the new more affordable SUV set to enter production later this year.
“Second, we see increased competition in 2025 for long-range EVs, which we define as greater than 400 km, that are priced similar to Tesla. The increased competition at similar range and price points could lead some consumers to choose an alternative, versus prior years where Tesla's competitors either had lower range or a higher price.
“Also, some customers could be holding off on purchasing a Tesla until full self-driving is approved in the EU, as Tesla is still waiting for approval. While Elon Musk's political statements create a risk for Tesla's brand to potentially turn away consumers, I can't say this is a key driver behind one bad month for Tesla.”
Should you sell your Tesla stock, or buy the dip?
At the time of writing, Tesla’s share price has fallen almost 25% year to date, making it the worst-performing of the Magnificent Seven tech stocks so far in 2025. It comes after a mixed 2024. The stock had a dismal start to the year followed by a dramatic rally after Donald Trump’s election win, ultimately hitting a new high in December.
The stock’s momentum in the aftermath of the US election result was largely driven by Musk’s close ties to Trump. Some investors believe Musk will use his position to help shape autonomous driving regulations, removing a significant roadblock for Tesla.
Despite this, challenges remain. Tesla’s fourth-quarter earnings disappointed analysts’ expectations, with revenues coming in almost 6% below forecasts ($25.7 billion versus estimates of $27.2 billion). Meanwhile, earnings per share came in at $0.66 versus estimates of $0.77.
Sales have been disappointing and, against a tough economic backdrop, Tesla has been under pressure to cut its prices to compete with cheaper alternatives. Figures published by the company on 2 January showed total deliveries fell on an annual basis in 2024 for the first time in over a decade.
A more affordable model has been promised in the first half of this year, and investors are hoping this will boost the sales outlook. Despite this, one of the main risks for investors is that Tesla’s shares still look significantly overvalued, even after recent share price losses.
Morningstar’s fair value estimate for the stock is $250, below the current share price of $290. This would suggest the stock hasn’t fallen far enough to create a case for “buying the dip”. Despite this, Morningstar analysts did actually raise the estimate from $210 after the latest earnings call, based on an assumption of “higher autonomous driving software adoption and faster growth in the energy generation and storage business”.
On the autonomous driving point, Musk said on the earnings call that he expects Tesla to be operating “unsupervised activity with [its] internal fleet in several cities by the end of the year”. Likewise, when it comes to energy generation and storage, the company said it expects energy storage deployments to grow by at least 50% year-on-year in 2025. This is becoming an increasingly important part of the business. Revenues in this division came in at $3.06 billion in the final quarter, up 113% on a year ago. The division accounted for 12% of Tesla’s overall revenues in the fourth quarter.
Nevertheless, the company still looks too expensive at current prices. Writing about the stock earlier this month, Jacob Falkencrone, global head of investment strategy at investment bank Saxo, said: “Even after its recent drop, Tesla remains by far the most expensive stock in the Magnificent Seven in terms of valuation, trading at roughly four times the forward price-to-earnings ratio of the rest of the group’s average.
“This has led to increasing concerns among investors that Tesla’s valuation is still too high, given the company’s slowing growth and execution risks. Wall Street remains divided: roughly half of analysts rate Tesla as a buy, while the other half suggest holding or selling, according to Bloomberg.”
