TLDR
- Tesla stock has fallen 40% from its late 2024 high with a 17% drop this week alone
- European car sales dropped nearly 50% in January raising concerns about Tesla’s core auto business
- Market value fell below $1 trillion, dropping behind Berkshire Hathaway and Broadcom in US company rankings
- Stock trades at 92x forward earnings compared to S&P 500 average of 21x
- Investors are concerned about Elon Musk’s political involvement and lack of near-term catalysts
Tesla’s stock continues to tumble in 2025, extending a sharp decline that has wiped out 40% of its value since reaching record highs in late 2024. The electric vehicle maker faces mounting challenges as its core automotive business shows signs of weakness.
The sell-off accelerated this week after data revealed Tesla’s European car sales nearly halved in January. This 17% decline in share price over just one week has rattled investors.
Tesla’s market value has now fallen below $1 trillion for the first time since November. This drop pushes the company below Berkshire Hathaway and Broadcom in the rankings of most valuable US companies.
The company’s troubles began earlier this year when it reported weak fourth-quarter delivery numbers. Sales showed the first annual drop in over a decade.
A subsequent earnings report revealed lower-than-expected quarterly profit. Tesla also reduced its sales outlook for 2025, further dampening investor confidence.
Analysts see few near-term catalysts that could spark a rally. There are no expectations for meaningful updates on Tesla’s fully self-driving vehicle plans anytime soon.
Meanwhile, Chinese competitor BYD announced it would enable advanced driver-assistance features in almost all future models at no extra cost. This intensifies competition in a key area where Tesla has traditionally led.
Elon Musk’s political involvement has also worried some investors. Many would prefer he focus more attention on running the electric vehicle maker rather than his other interests.
The stock’s valuation remains exceptionally high despite the recent decline. Tesla shares trade at 92 times forward earnings compared to the S&P 500 average of 21 times.
Options traders are showing signs of caution. The implied skew on one-month options turned bearish last week for the first time since November, indicating traders are seeking protection against further declines.
Technical analysts remain cautious
Technical analysts remain wary due to the momentum of the current downtrend and Tesla’s history of intense volatility. Some expect support around the $275 level, with a potential further drop to $260 if that level breaks.
Tesla’s post-election rally showed how quickly sentiment can change. The stock nearly doubled in value over just 29 trading sessions following Donald Trump’s victory.
However, investors hoping for a quick turnaround may face challenges. The company must balance potential benefits from Musk’s relationship with President Trump against the reality of its struggling EV business.
Tesla bulls remain optimistic about future prospects beyond the core automotive business. They point to potential opportunities in robotaxis, humanoid robots, and AI monetization.
However, these opportunities remain largely speculative with unclear timelines. With 89% of Tesla’s value based on future earnings according to some analysts, the stock reflects high expectations for promises yet to be fulfilled.
The recent stock decline coincides with protests at Tesla dealerships and growing criticism of Musk. Some longtime Tesla owners have publicly disavowed the CEO as his political involvement has alienated certain customer segments.
Tesla’s valuation assumes significant future growth and innovation. Whether the company can deliver on these expectations will determine if the current sell-off represents a buying opportunity or the beginning of a more prolonged decline.
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