Why is the Tesla share price falling?
Discover why Tesla's share price is falling in 2025, from increased EV competition and production issues to economic headwinds and valuation concerns.
Why is the Tesla share price falling?
Tesla's stock has tumbled significantly in recent months, becoming one of the S&P 500's worst performers as competition intensifies and production challenges mount.
The extent of Tesla's share price decline
Year-to-date Tesla's stock has experienced a significant 30% decline, positioning it as the second worst-performing stock in the S&P 500 index. This downturn can be attributed to a confluence of factors, including heightened competition, production challenges, external economic pressures and bad press regarding Elon Musk.
The magnitude of the decline has sent shockwaves through the investment community, particularly affecting growth-oriented portfolios that had heavily weighted Tesla in recent years. Many long-term Tesla bulls are now reassessing their positions as the narrative shifts.
The share price drop represents a stark contrast to Tesla's meteoric rise during the 2020-2022 period, when the company benefited from accelerating electric vehicle (EV) adoption and widespread investor enthusiasm. This reversal of fortune highlights the volatile nature of high-growth stocks, especially those trading at premium valuations.
Intensifying competition in the electric vehicle market
The global electric vehicle (EV) market has become increasingly competitive, with numerous automakers introducing new models to capture market share. Traditional automotive giants and emerging startups alike are investing heavily in EV technology, offering consumers a broader range of choices.
This surge in competition has put pressure on Tesla's market dominance, leading to concerns about its ability to maintain its growth trajectory. Analysts have noted that Tesla faces "slower growth and rising risk" due to these competitive dynamics.
Chinese manufacturers like BYD, now the world's largest EV manufacturer, and NIO have rapidly expanded their presence in global markets, offering compelling alternatives at competitive price points, despite in some countries being hampered by large tariffs. Their success has been particularly pronounced in Asia and Europe, eroding Tesla's international growth prospects.
Legacy automakers have also accelerated their electric vehicle strategies, with companies like Volkswagen, Ford, and General Motors committing massive resources to EV development. These established players bring significant manufacturing expertise and dealer networks that present formidable challenges to Tesla's expansion plans.
The luxury electric segment, once dominated by Tesla's Model S, now faces competition from premium offerings by Porsche, Audi and Mercedes-Benz. These vehicles appeal to high-end consumers who previously had limited electric options, directly targeting Tesla's most profitable market segments.
Production and supply chain challenges
Tesla has encountered production bottlenecks and supply chain disruptions that have hindered its ability to meet delivery targets. These challenges have not only affected production timelines but have also increased operational costs, impacting profit margins.
The company's ambitious expansion plans, including the development of new gigafactories, have been met with logistical hurdles, further exacerbating production issues. Such operational inefficiencies have raised investor concerns regarding Tesla's capacity to scale effectively.
Economic and policy headwinds
External economic factors, such as fluctuating raw material prices and trade policies, have also played a role in Tesla's stock performance. For instance, President Trump's recent tariffs have created uncertainty in various industries, including automotive manufacturing.
Companies like Tesla are grappling with the potential implications of these tariffs on their supply chains and profitability. Market analysts have observed that such policy decisions have "created significant uncertainty among companies, particularly around their impact on earnings and sales."
Government incentives for electric vehicles, which helped fuel Tesla's early growth, have begun to phase out in key markets or have been extended to benefit a broader range of manufacturers. This changing regulatory landscape has removed some of Tesla's historical advantages in the marketplace.
Valuation concerns amid market dynamics
Tesla's stock has historically been characterised by high valuation multiples, reflecting investor optimism about its future prospects. However, the recent decline has prompted a re-evaluation of these valuations.
Despite the stock's downturn, it remains "not cheap," with a forward price-to-earnings ratio (P/E) still in the triple digits. This disparity between valuation and performance has led to increased scrutiny from investors and analysts alike.
The company's market capitalisation had previously reached levels that implied extraordinary future growth and diversification beyond automotive manufacturing. As enthusiasm for Tesla's non-automotive ventures like energy storage and robotics has tempered, investors are reassessing these lofty expectations.
Wall Street analysts have become increasingly polarised on Tesla's outlook, with price targets showing a remarkably wide-spread. This divergence of expert opinion reflects the fundamental uncertainty surrounding Tesla's future growth trajectory and appropriate valuation metrics.
Institutional investors, who typically provide stability during market volatility, have been reducing their Tesla positions according to recent SEC filings. This shift in institutional sentiment suggests a more cautious approach to the company's prospects among professional money managers.
Tesla analyst ratings
According to LSEG Data & Analytics, analysts rate the Tesla share as between a 'Buy' and a 'Hold' with 7 'Strong buy', 18 'Buy', 17 'Hold', 9 'Sell' and 3 'Strong sell' (as of 06/03/2025).
Tesla has a TipRanks Smart Score of '3 Underperform' with 13 'Buy', 12 'Hold' and 10 'Sell' recommendations, making it a 'Hold' (as of 06/03/2025).
Investor sentiment and broader market trends
The decline in Tesla's stock is also reflective of a broader market rotation. The so-called "Magnificent Seven" stocks, which include major tech companies like Tesla, have experienced a downturn as investors shift focus to other sectors and relatively "cheaper" Asian and European stocks.
Tesla amid Magnificent Seven stock year-to-date performance
As noted in recent analyses, "stocks from regions targeted by President Trump, such as Canada, Colombia, Mexico, Europe, and China, are outperforming the S&P 500," indicating a shift in investor preferences.
This rotation is influenced by various factors, including geopolitical developments and advancements in artificial intelligence, which are reshaping investment strategies.
Elon Musk's impact on the Tesla share price
Elon Musk's increasing political involvement and controversial actions have negatively impacted Tesla's brand image, leading to declining sales in key markets and a significant drop in its share price.
In Europe, Tesla's sales have plummeted, with Germany experiencing a 76% decrease in February compared to the previous year, despite a 31% rise in overall EV sales during the same period.
Similarly, Tesla's sales in China fell by 49%, while its competitor BYD saw a 90.4% increase.
Analysts attribute these challenges to Musk's political affiliations, which have alienated environmentally conscious consumers and led to boycotts, particularly in Europe, and even the burning of a Tesla charging station in the US state of Massachusetts.
This shift in consumer sentiment underscores the importance of leadership perception in influencing a company's market performance.
Technical analysis of Tesla's stock performance
From a technical analysis perspective, the Tesla share price seems to be bouncing off its Aprile 2024-to-2025 uptrend line at $261.84, but nonetheless remains on track for its fifth straight week of declines.
Further potential support can be seen along the 200-week simple moving average (SMA) at $247.95.
Tesla weekly candlestick chart
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