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Despite a troubling financial quarter across various key indicators, shares of Tesla (TSLA 9.74%) experienced a rise, even as the electric vehicle manufacturer retracted its annual guidance. Currently, while the stock is down over 35% for 2025, it has appreciated roughly 80% in the past year, defying a series of disappointing quarterly earnings.
This uptick in stock value can be linked to CEO Elon Musk’s commitment to invest more time managing Tesla, moving away from his role at the Department of Government Efficiency (DOGE). Musk has also continued to generate excitement around Tesla’s robotaxi and artificial intelligence (AI) prospects.
While the stock surged in response, it’s important to consider the potential for further declines moving forward.
Struggles in the Core Auto Business
Musk’s foray into political ambitions and his focus on DOGE have seemingly tarnished Tesla’s brand. Many prospective EV buyers feel alienated, and although Musk’s pledge to concentrate on Tesla is commendable, the damage appears to have been done.
Recent first-quarter numbers reveal significant declines in auto deliveries and revenue. Deliveries fell 13% to 336,681 units, while auto revenue plummeted 20% to $14 billion. Deliveries of the Model 3 and Model Y also decreased by 13%, and the company’s less popular models witnessed a 24% drop, indicating challenges with the newly released Cybertruck.
This downturn does not seem to be an isolated incident. Tesla’s management has withdrawn its full-year guidance, citing difficulties in assessing the impact of changing global trade policies on both the automotive and energy supply chains. Chief Financial Officer Vaibhav Taneja recognized the brand’s current challenges during a recent earnings call.
Musk attempted to downplay the poor sales numbers, framing them as part of a broader economic challenge and asserting that demand remains steady. However, this claim is countered by the data: Tesla experienced nearly a 9% drop in U.S. deliveries, while overall U.S. EV deliveries rose by more than 10%. International market trends are similarly contrasting, with global EV sales climbing by 29% in the first quarter according to Rho Motion, and significant growth reported in both European (22%) and Chinese (36%) markets.
This indicates that Tesla is losing ground in a marketplace that is otherwise thriving for electric vehicles.
Focusing on Ambitious Promises
Amid declining sales, Musk has once again turned to ambitious projections concerning autonomous driving, robotaxis, and AI advancements.
He announced plans to inaugurate paid robotaxi services in Austin, Texas, starting in June, with an initial fleet of 10 to 20 vehicles. The rollout is expected to expand to additional cities by the end of the year, with promises of significant impacts to come by mid-2026.
However, adhering to this timeline raises numerous questions. Presently, Tesla has only achieved Level 2 automation, where the vehicle can manage steering and speed with driver engagement. A fully autonomous robotaxi would need to reach Level 4 automation, allowing it to drive itself in designated areas. The leap from Level 2 to Level 4 bypasses Level 3, highlighting the complexity of the undertaking.
Details on how Tesla plans to realize Level 4 automation remain scant. The company’s strategy excludes lidar technology, favoring a vision-only approach, which has left it lagging behind competitors. Tests of Tesla’s current capabilities have also revealed significant shortcomings. Historically, Musk has faced criticism for overpromising and underdelivering, raising skepticism about the feasibility of a June rollout.
Even if the robotaxi service launches, it won’t necessarily resolve the existing issues. Rivals like Alphabet‘s Waymo already lead in the sector, and Tesla’s reputational issues could extend to its robotaxi offerings. Furthermore, many potential robotaxi operations would be concentrated in major urban areas, which may not align with Tesla’s brand image.
Rohan Patel, formerly Tesla’s head of business development and policy, indicated in a discussion with The Information that internal assessments show the financial return on robotaxi investments is likely to be gradual.
Concerns About Valuation
Tesla’s stock has consistently been assigned a high valuation premium, largely based on Musk’s visionary promises rather than solid economic fundamentals. This trend appears more pronounced now than ever.
The company is experiencing declines in both market share and revenue, trading at a staggering forward price-to-earnings ratio (P/E) exceeding 100 based on 2025 projections. In contrast, more profitable competitors in the U.S. automotive space maintain multiples below 10. Additionally, the market appears to undervalue the robotaxi initiative, especially compared to Alphabet, which operates a paid robotaxi service without enjoying similar stock premiums.
Given Tesla’s inflated valuation and ongoing brand challenges, it seems likely that the stock has considerable room for further decline in the near future.
Source
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