Just how much trouble is Elon Musk causing Tesla?
Tesla’s enigmatic chief executive, Elon Musk, gets a lot of flak, but if there’s one area you would think he’d be untouchable, it’s innovation.
Beyond falling out with the US President and colonising Mars, Elon Musk’s next favourite pastime looks set to be robotaxis, with Tesla preparing to launch its first fleet in Austin, Texas, later this month.
Many view Musk’s venture into driverless taxis, an undeniably risky bet, as a signal of Tesla’s failure to keep up with cutting-edge Chinese brands in the electric car space.
“Innovation on the car side has slowed down massively,” Phillipe Houchois, an analyst at Jefferies, observed in a recent note.
Tesla is also facing a string of issues in its staple market.
Take its mega-selling Model Y, for example. While it was the company’s best-selling EV in 2024, “momentum is fading,” said Professor Howard Yu of the Institute for Management Development (IMD).
Registrations slipped eight per cent last May, alongside a 36 per cent drop in market share.
BYD, the Chinese auto giant making waves across Europe, overtook Tesla on the continent in both April and May, while Shanghai-based MG now sits in the UK’s top five EV marques.
“Their threat goes beyond sticker price,” Yu explained, noting technological developments in batteries, chips and software.
A report by the IMD, led by Yu, concluded earlier this year that BYD had “erased Tesla’s once unassailable lead in the automotive industry” and become the most “future-ready” carmaker on the planet.
Elon Musk’s political fallout
Chinese carmakers such as Xpeng and Li Auto have also capitalised on a loss of consumer love for Tesla, the IMD found.
That’s been driven in large part by the near-constant controversy surrounding Musk. “Tesla now ranks near the bottom of major‑brand reputation polls, a slide attributed directly to Elon’s polarising public persona,” Yu said.
“His recent public feud—and hurried reconciliation—with President Trump highlighted how quickly a ‘Musk premium’ can flip into a liability for both share price and sales sentiment.”
Shares fell more than 16 per cent in the immediate aftermath of Musk’s blowout with Trump, but have since largely recovered.
Many shareholders view the billionaire’s exit from the US administration as a positive, but Tesla itself is highly vulnerable should Trump seek to retaliate against his former colleague.
“Tesla’s weak shipments, relative to those of key Chinese competitors like BYD and overall EV growth, in important markets like California, the EU and the UK suggests there may have been some blowback from consumers about Musk’s political affiliations and statements,” Russ Mould, investment director at AJ Bell told City PM.
“One or a combination of either competition, customer disaffection or regulation usually challenges a company’s profits, or even its business model, in the end, and customer disaffection can open the door for competition as could be the case here.”
Tesla’s outlook is highly uncertain
Whatever happens next in Musk’s tumultuous political journey, Tesla’s outlook for the year ahead is already highly uncertain.
“Expect continued margin-squeezing price cuts through 2025 as the refreshed Model 3 and Berlin-built Model Y battle a widening field of Chinese imports,” Yu said.
“Longer term, Tesla still controls the supercharger network and leads in over-the-air capabilities.
He added: “And if the rumoured sub-£25k “Model 2” lands on schedule in late 2026, it could reset the narrative. But at this stage, it’s flawless execution—not bravado—that will determine the winner.”
Positive developments in the robotaxi space would provide a further boost, but a series of hurdles remain. Musk is after a change to federal law to speed-up delivery, an outcome made less likely given current relations with the Trump administration.
For all the troubles, Tesla still commands a $1trn (£738.7bn) stock market capitalisation, compared to $150bn for BYD.
Mould said: “That valuation disparity suggests investors anticipate a recovery in sales and profits at the Tesla car business, and still expect great things from the Cybertruck, robotaxi, Optimus and other group operations.”
Shares are down 16 per cent since January, but are up nearly 75 per cent over the last 12 months.