Tesla encountering critical situation at Musk's direction
Struggling in Trump's Trade War
Tesla, much like other American manufacturers, finds itself in a predicament due to President Donald Trump's escalating trade battles. However, Tesla has an extra layer of complexity – its CEO, Elon Musk, is often referred to as the First Buddy for his close relationship with the president.
As Tesla prepares to report earnings on Tuesday and answer questions from investors, Musk faces a Catch-22. If he continues his closeness to Trump, the company risks losing potential customers, both domestically and internationally, who disapprove of Trump's policies. If he distances himself from Trump, he risks angering the White House. It's a lose-lose situation, and it's one that Musk has largely brought upon himself.
The first quarter saw a significant drop in Tesla's sales following nearly uninterrupted double-digit growth. Investors are eager for updates, particularly concerning the impact of the Trump administration's 25% tariffs on all imported vehicles and Musk's thoughts on these duties. Another pressing question is when Musk intends to step away from his role in Washington, D.C., and focus on addressing the issues at Tesla.
Investors are also keen to hear updates on Tesla's self-driving cars, Robotaxi fleet, more affordable models, and plans for humanoid robots. Positive news on any of these fronts could help reverse the slide that has eroded about half of Tesla's share value (TSLA) since mid-December and help restore some faith in the company.
Analyst Dan Ives of Wedbush Securities, a longtime Tesla bull who recently reduced his price target for Tesla shares, warned that Musk is facing a "code red situation" if he continues his high-profile role in the Trump administration. Blaming brand damage for falling sales, Ives suggested that Musk should leave the government and focus on being CEO of Tesla full-time.
Beyond the Musk backlash, Tesla is also facing growing competition from other electric vehicle manufacturers, particularly in China. Adverse news on any of these fronts could precipitate another downward spiral for the shares.
"It's turned into a nightmare for Tesla and for investors," Ives told CNN. "The tariffs, the DOGE controversies, the brand damage – it's been a perfect storm."
Navigating the Tariff Minefield
In some ways, Tesla is less exposed than other automakers to Trump's auto tariffs. The company does not import cars from its two overseas factories, and its US-built vehicles use fewer foreign parts compared to other automakers. Nevertheless, Musk has stated that the cost to Tesla will be "not trivial."
"Important to note that Tesla is NOT unscathed here. The tariff impact on Tesla is still significant," Musk noted on his social media platform, X, the day after Trump's auto tariff plans were announced. Criticizing tariffs too openly during Tuesday's call could jeopardize Musk's rapport with Trump. Musk became Trump's largest financial donor last year and has been among his closest advisors since the inauguration. Tesla shares nearly doubled in value in the two months following the election as some investors and analysts hoped Musk would influence Trump to implement Tesla-friendly policies, particularly regarding self-driving vehicles.
On the other hand, strong support for Trump's tariff policies could upset Chinese authorities and domestic EV buyers. China is the world's largest auto market and EV market, but Chinese consumers are increasingly turning to competitors such as China's own BYD. Tesla generated $20.9 billion in sales in China in 2024, about 21% of its revenue, its second-largest market after the United States. Ives warned that "the backlash from Trump tariff policies in China and Musk's association will be hard to understate."
When Will Musk Leave DOGE?
Protests outside Tesla showrooms and vandalism at its facilities underscore the backlash that Tesla and its CEO are facing. Some of the most popular investor questions on Tesla's website touch on this issue.
"Did Tesla experience any meaningful changes in order inflow rate in Q1 relating to all of the rumors of 'brand damage'?" reads one question endorsed by more than 1,000 investors. "How is the company planning to deal with the impact of Elon's partnership with the current administration?" asks another popular investor question. Another asks: "Boycotts, protests, vandalism, negative headlines, and a stock slide have been sparked by Elon Musk's participation in changes to U.S. gov't services & employment. Is the Tesla board discussing whether their CEO should focus fully on Tesla and leave gov't to elected politicians?"
When Musk held an all-hands meeting for Tesla employees last month, it sparked a one-week rally in its battered shares. However, the rally proved short-lived.
On April 2, when Tesla reported its biggest-ever year-over-year drop in quarterly sales, shares plummeted – until Politico ran a story later that morning stating that Musk would soon relinquish his role in the government. The news lifted shares. However, Musk and other administration members disputed the story's accuracy.
"Tesla's first-quarter sales and production report lead us to believe that – if anything – we may have underestimated the degree of consumer reaction," JPMorgan Chase analyst Ryan Brinkman wrote in a note to clients earlier this month.
Tesla did not respond to a request for comment regarding its sales or the impact that Musk's role in the administration had on those sales.
Promises Without Progress
Musk has made ambitious promises for a fleet of self-driving robotaxis and humanoid robots, promising that they would make Tesla the most valuable company in the world. He had touted plans for a driverless ride-hailing service in Austin, Texas, initially set to begin in June. However, there have been no updates. Meanwhile, Uber and Google's own driverless car unit, Waymo, has already started its joint driverless taxi service in that city.
"It would be a massive negative for the stock if he pushed back (the robotaxi plans)," Ives said. "We need to hear good news there, because there won't be good news in terms of earnings or what the rest of the year will look like financially."
- Tesla's technology developments, such as its self-driving cars, Robotaxi fleet, more affordable models, and plans for humanoid robots, are especially important for binding investor interest.
- Despite being one of Trump's closest advisors, Elon Musk may face challenges in the sports sector, given the potential boycotts, protests, vandalism, and negative headlines sparked by his involvement in government services and employment.
- Tesla's business in China could be significantly impacted by the distances created by Musk's association with Trump's tariff policies, as Chinese authorities and domestic EV buyers may express disapproval.
- The binding factor in Tesla's situation is the technology sector, which Musk must navigate carefully, as both investor expectations and competition from other electric vehicle manufacturers continue to grow.
