Is This the Beginning of Tesla’s Downfall?

Remember that Rogan podcast in 2018? Elon Musk took one puff of weed.

That single moment threw Tesla into chaos.

Tesla shares dropped 9% overnight. Billions in value vanished.

SpaceX faced tough questions about its government contracts.

Musk later admitted he was surprised by the backlash.

SpaceX employees suddenly faced random drug tests. Investors worried about his judgment during a crucial time for Tesla.

Then came 2020. Musk tweeted: "Tesla stock price is too high imo."

Those seven words sent shares crashing more than 10%. The market lost $14 billion in hours.

His tweet also broke an SEC agreement requiring approval for such statements.

Once again, people questioned Musk's impulse control. Investors wondered if they could trust him.

These weren't isolated incidents. They revealed how unpredictable Musk's leadership can be.

His behavior continues to change how we see corporate leaders. It affects investor confidence and corporate governance rules.

As Q1 2025 ends, Tesla faces serious financial and operational challenges.

The company must now overcome both market pressures and its founder's unpredictable nature.

Financial Freefall: Margins Collapse as Earnings Power Evaporates

Tesla’s financial position weakened sharply in early 2025.

On March 10, its stock fell 15.4% in a single day, wiping out $125 billion in market value.

By March 12, shares hovered around $230, a 34% drop year-to-date.

Q4 2024 financials exposed deeper problems:

Revenue hit $25.7 billion, up 2% year-over-year, but missed estimates by $1.6 billion.

Price cuts and aging models dragged performance down.

Operating income fell 23% to $1.6 billion. Operating margins shrank to 6.2%, less than half of 2021 levels.

Per-vehicle profit plunged to $5,102 a 74% drop from late 2021.

Analysts slashed forecasts.

UBS cut its price target to $225 from $259.

It predicted Q1 2025 auto gross margins (excluding credits) would fall to 10.3%, down from 13.6% in Q4 2024.

Earnings per share (EPS) estimates for 2025 dropped to $2.85, a 66% cut from the $8.50 projected in 2023.

Tesla’s cash reserves stayed strong at $36.6 billion, but free cash flow fell to $2.0 billion in Q4 as the company pushed discounts to clear inventory.

Tesla’s value still depends on future bets like robotaxis and Optimus robots not current performance.

With auto margins nearing single digits and energy storage profits under pressure, keeping investor confidence is getting harder.

Production Bottlenecks and Global Sales Decline

Donald Trump tweeted today about Elon Musk's announcement that Tesla will double its U.S. vehicle production within two years.

Musk credited this decision to Trump's policies and expressed strong confidence in America's future.

However, Tesla’s production and delivery strategy is encountering significant obstacles.

Despite a theoretical global gigafactory capacity of 2 million vehicles annually, output stalled at 1.79 million deliveries in 2024 marking Tesla’s first annual decline.

Cybertruck production in Texas remains constrained, achieving only 10% of planned capacity.

Since its 2019 reveal, prices have surged by 50%, discouraging early adopters.

EU tariffs of 7.8% on Chinese-made Model Ys have forced Tesla to redirect exports, exacerbating inventory surpluses.

Regional sales data show sharp declines.

In Germany, Tesla reported a 59.5% year-over-year drop in January 2025 and a 76.3% decline in February.

French sales fell 63.4% in January.

China’s February sales dropped 49.16% as local competitors like BYD and Xpeng gained market share.

In California, Tesla’s key U.S. market, sales fell 11.6% in 2024, reducing Tesla’s market share to 52.5%.

Tesla’s aging model lineup and vulnerability to tariffs leave the company exposed to rivals offering cheaper, more technologically advanced electric vehicles.

Elon Musk: A Leadership Liability?

Elon Musk’s public and political activities in 2025 have intensified concerns about his leadership.

Musk’s net worth declined by $132 billion during the year, yet his influence on Tesla remains significant.

As an advisor to Donald Trump’s "DOGE" initiative, Musk publicly supported tariffs and job cuts.

This stance alienated 85% of Democrats, a core demographic for electric vehicle adoption.

Protests erupted at Tesla stores across the U.S., while Toronto revoked Tesla’s eligibility for electric vehicle subsidies.

Musk’s political endorsements also hurt European sales.

France excluded Tesla from EV subsidies, while German public approval of the company dropped by 59%.

Within Tesla, Musk’s divided focus balancing SpaceX, X (formerly Twitter), and xAI has led to operational bottlenecks.

Employees report delays in addressing Cybertruck production issues and Full Self-Driving (FSD) software bugs.

Consumer backlash is also rising.

Some Tesla owners are rebranding their vehicles with Audi and Mazda logos, while others display stickers reading, "I bought this before Elon went crazy."

A Cybertruck owner projected "Mussk Production" as a satirical critique, highlighting growing dissatisfaction with the brand.

Tesla Faces Fierce Competition

Tesla’s global battery electric vehicle (BEV) market share fell to 19% in 2025, down from 23% in 2023.

Competition from Chinese manufacturers and legacy automakers continues to intensify.

BYD’s market share reached 18%, driven by affordable models like the $14,000 Seagull hatchback.

An $8.2 billion gigafactory in Hungary targets the European market, undercutting Tesla’s Model 3 by 30%.

Xpeng recorded 267% year-over-year growth in January 2025, propelled by its $26,000

Mona M03 model, which relies on vision-only autonomy.

Legacy automakers are also gaining ground.

The Volkswagen ID.4 outsold the Model Y in Europe during Q1 2025.

BMW’s i7, with Level 3 autonomy approved in Germany, has surpassed Tesla’s FSD capabilities.

Toyota plans to launch a $10,000 electric vehicle in India by 2026.

Tesla’s average selling price (ASP) dropped 26% since 2022 to $39,818.

Meanwhile, competitors like BYD and SAIC are exploiting tariff gaps to introduce cheaper models, such as MG’s $30,000 Cyberster in the UK.

Tesla’s Survival Bets

Tesla’s future relies on three critical initiatives.

A $25,000 compact electric vehicle is set to launch in mid-2025, based on the Model 3 platform.

It targets 2 million annual units but risks cannibalizing existing sales. UBS warns this could drive margins below 10%.

Full Self-Driving (FSD) remains under scrutiny.

Version 12.3.3 requires driver supervision, and an unsupervised rollout in Austin faces National Highway Traffic Safety Administration (NHTSA) scrutiny across 12 safety mandates.

Optimus robot prototypes are assembling batteries in Fremont.

However, full commercial production is delayed until 2026.

In the energy sector, Tesla deployed 11 GWh of energy storage in Q4 2024, an 80% year-over-year increase.

However, competitors CATL and LG Chem are undercutting Tesla’s Megapack prices. Tesla’s Shanghai Megafactory plans to double Asia-Pacific storage capacity by late 2025.

Can Tesla Navigate 2025’s Challenges?

Tesla’s prospects remain uncertain.

Ark Invest maintains a $300 price target based on robotaxi and energy storage success.

In contrast, Morgan Stanley forecasts $165, citing collapsing margins and Musk’s polarizing leadership.

Key indicators to watch include Q1 2025 margins (reported April 20) a figure below 15% would suggest further deterioration.

The Model Q’s launch performance will determine Tesla’s ability to compete in the mass market, while investor calls for Musk’s removal highlight ongoing governance concerns.

Tesla’s ability to balance innovation with operational stability will be crucial in the coming months.

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Disclaimer: This newsletter is for educational purposes only and should not be considered financial advice. Always conduct your own thorough research before making any investment decisions.