If a company beats and raises each quarter, its stock price tends to rise, otherwise it falls. But not always. A case in point is Tesla stock — which rose more than 7% in after-hours trading on April 23 — despite missing and lowering.
How so? Tesla’s first-quarter earnings report featured a 20% drop in automotive sales and a 70% profit plunge, according to to CNBC. What’s more, Tesla — whose shares have fallen 51% from their December 2024 high — pulled its 2025 outlook due to “rapidly evolving trade policy” and “changing political sentiment” which could reduce near-term demand, according to Tesla’s Q1 2025 earnings call transcript.
Tesla executives blamed much of the sales decline on “production slowdowns as the company reworked assembly lines to build a new version of the Model Y sport utility vehicle,” reported the New York Times.
Why the disconnect between Tesla’s stock price rise and the company’s disappointing performance and prospects? Two possible reasons are:
- Tesla CEO Elon Musk says he will soon cut back his time leading the Department of Government Efficiency, CNBC reported; and
- Traders seem to buy his vision for making the company “as valuable as the next five companies combined” by selling autonomous cars and robots a market he said will be worth “trillions of dollars,” according to the Times.
If you believe Musk’s DOGE retreat will make his vision come true, now could be a good time to buy the stock. I see four problems Musk must solve to reward Tesla shareholders:
- Consumers — increasingly squeezed by rising prices due to tariffs — will seek more cost-effective transportation solutions,
- Sentiment against Musk is driving some customers to shed their Teslas;
- Rivals are offering lower-priced vehicles offering better consumer value; and
- The market for autonomous cars and robots may fall way short of Musk’s predictions.
Short-sellers have profited handsomely from the drop in Tesla’s stock — reaping $11.5 billion in profits so far in 2025, according to S3Partners data featured by CNBC. Since most of these problems strike me as insurmountable, I would avoid this stock.
I have requested comment from Tesla and Waymo and will update this post if I receive a response.
Consumers Could Be Squeezed By Rising Tesla Prices
Due to President Donald Trump’s tariffs on automobiles and automobile parts, manufacturers may pass on their higher costs to consumers in the form of higher prices.
Moreover, since income increases are likely to lag the general rise in prices resulting from tariffs, many consumers will seek to spend as little as they can on transportation so they can afford other essentials like food, housing, and medical care.
Tesla recognizes this challenge. “Given economic uncertainty resulting from changing trade policy, more affordable options are as critical as ever,” Tesla said in its earnings release.
Tesla is facing this uncertainty, expecting its costs to rise and demand for vehicles to drop. “It is difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains, our cost structure, and demand for durable goods and related services,” noted Tesla’s report to shareholders.
Tesla offered two potentially positive solutions: plans to make a lower-priced vehicle and a manufacturing footprint less exposed to tariffs.
While Tesla has not displayed a prototype or provided many details, the company said it would produce “a lower-cost vehicle by the end of June.” reported the Times. However, analysts — who do not anticipate significant near-term production — question whether the design will be new or “a stripped-down version of Tesla’s Model 3 sedan or Model Y,” the Times added.
While Tesla imports auto parts from Mexico and China which will be subject to 20% tariffs, the company’s factories in California and Texas where all the vehicles that it sells in the United States are built make Tesla the “least-affected car company with respect to tariffs,” Musk told investors in the April 22 conference call.
Sentiment Against CEO Elon Musk Could Cost Tesla Customers
Musk has turned off some Tesla buyers – including “some liberals and centrists,” noted the Times. With DOGE cutting thousands of government jobs, he has become a “lightning rod” — causing activists to protest outside Tesla dealerships, the report added.
Musk obliquely acknowledged this damage to Tesla’s reputation. “Changing political sentiment could have a meaningful impact on demand for our products in the near term,” according to a company statement.
Some Tesla owners are moving quickly to replace their vehicles to avoid the shame of being associated with Musk’s “values and politics,” according to my March 2025 Forbes post.
That shame could persist since Musk demeaned the Tesla protestors Tuesday who are “receiving the waste and fraud” they wish to continue, Musk told investors without specific proof.
Rivals Could Win Customers From Tesla
Tesla has created an electric vehicle market opportunity which has attracted intense competition from Chinese and other traditional carmakers, noted Apple’s Electric Vehicle, a best-selling business case study I co-authored.
This competition is reflected in lower Tesla sales. For example, while Tesla once hoped to sell 20 million vehicles annually by 2030, sales peaked at 1.8 million in 2023 and fell to 1.7 million in 2024. In the first quarter of 2025, Tesla’s global sales declined 13%, according to the Wall Street Journal.
Tesla has suffered significant sales declines in some of its biggest markets, including California and China.
In California, the nation’s largest EV market, Tesla’s Q1 market share fell from 56% to 44% of all zero-emission vehicle registrations in the state, according to the California New Car Dealers Association. In the first quarter, Tesla shipments to China and Germany, fell about 22% and 62%, respectively noted the Journal.
Picking up the slack are Chinese carmakers such as BYD as well as more established automakers, such as General Motors, Volkswagen and Hyundai, wrote the Times.
The Autonomous Car And Robot Market Could Be Smaller Than Musk Expects
Musk has predicted autonomous vehicles will generate “trillions of dollars in revenue,” according to the Times.
Tuesday Musk told investors Tesla’s future was in using artificial intelligence to ferry people in fleets of “Cybercabs” akin to what Alphabet’s Waymo has been doing in Phoenix and San Francisco, noted the Times.
But Waymo does not seem to be generating revenue approaching the figures Musk anticipates. After years of effort, Waymo completed about 200,000 paid rides every week in four cities, announced plans to expand to Washington, and is testing its cars in Tokyo.
Indeed, Waymo appears to be a money-losing business with little revenue. Waymo’s 2024 revenue is in the range of $50 million to $75 million, with a loss approaching $1.5 billion after having attracted $10 billion in capital from investors to date, according to a BofA report featured by App Economy Insights.
With Tesla lagging in autonomous vehicles, I would be in no hurry to own Tesla stock.
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