Tesla Faces Brand Crisis Amid Political Ties and Market Decline

Tesla (NASDAQ: TSLA) stock previously peaked at $480 per share in December. At that time, CEO Elon Musk was a significant supporter of Donald Trump, who had just won the presidential election. This connection led investors to believe Tesla could gain from lowered regulatory barriers. However, the scenario has turned unfavorable.

Currently, Tesla’s stock has dropped 50% from its peak, and market share losses have accelerated. Equity analyst Dan Ives from Wedbush Securities reported that Musk’s political involvement has initiated a “brand crisis” for the company.

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Notably, Ives has been one of Tesla’s staunch supporters on Wall Street. Nonetheless, he now asserts that the company is at a critical juncture that may alter the investment viewpoint if Musk does not reduce his political engagement soon. Here’s what investors need to know.

Potential Brand Damage from Elon Musk’s Political Actions

Dan Ives has previously been optimistic about Tesla. He characterized Musk’s support for Trump as a strategic “bet,” believing their relationship would streamline regulations surrounding autonomous driving and robotaxis. However, since then, his perspective has shifted.

Ives told CNBC that post-election, Tesla became the “most undervalued AI name in the market.” He anticipated the stock could reach $600 per share as the company advanced into artificial intelligence sectors like autonomous ride-sharing and humanoid robotics. Unfortunately, Musk’s political ties have markedly backfired, leading to unforeseen consequences.

While operations are based in the U.S., Tesla imports parts now facing a 25% tariff due to the Trump administration’s policies. Elon Musk’s role in the Department of Government Efficiency has also contributed to his polarizing image, potentially alienating customers across key markets.

This political backlash has contributed to a significant decline in global sales. In the first quarter, deliveries fell 13%, hitting a three-year low, despite a 29% growth in the overall electric vehicle market. Tesla’s market share dropped by 9 percentage points in both the U.S. and Europe, and by 4 percentage points in China.

Ives believes that the situation represents a self-inflicted crisis fueled by Musk’s political activities, warning of “permanent brand destruction” if the CEO fails to refocus on the company. He also revised his price target for Tesla to $315 per share, reflecting a more somber outlook while maintaining a buy rating on the stock.

Image source: Getty Images.

Wall Street Lowers Earnings Estimates, Yet Future Opportunities Abound

Since January, several analysts have adjusted their future earnings expectations downward, reducing consensus estimates for 2025 and 2026 by 22% and 16%, respectively. Currently, Wall Street projects Tesla’s earnings will grow at an annual rate of 18% through 2026. At this rate, the current valuation of 100 times earnings appears quite expensive.

Tesla stands at a pivotal moment with the upcoming launch of robotaxi services set for June and the potential rollout of Optimus humanoid robots next year. Market estimates place these ventures as multitrillion-dollar opportunities for the company. If Tesla meets its deadlines, it could see earnings growth outpace expectations.

Beyond 2026, earnings could further accelerate as Tesla’s autonomous ride-sharing and robotics sectors expand. In a previous earnings call, Musk stated that Tesla could evolve into the world’s most valuable company, potentially surpassing the value of the next five companies combined due to the promising nature of autonomous solutions.

However, this assertion carries significant execution risk, particularly as Tesla has often missed previous timelines. Investors wary of this risk should consider avoiding the stock, while those with a more patient outlook may find an attractive buying opportunity available now.

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Trevor Jennewine has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.