Elon Musk, often hailed as a “Moonshot Master,” the “Edison of Our Age,” and the “Architect of the Future,” is facing a serious challenge — and this time, it’s coming from within his flagship company, Tesla. The issue? A tarnished brand image that’s proving difficult to repair.
Tesla’s sales have taken a sharp downturn amid growing backlash and boycotts tied to Musk’s alignment with far-right political views. The fallout has been steep — profits have dropped by two-thirds so far this year — while competitors from China, Europe, and the U.S. are aggressively moving in to capture market share.
On Tuesday, Musk tried to reassure investors during Tesla’s earnings call, announcing that he would cut back his involvement in cost-cutting efforts in Washington to just “a day or two per week,” allowing him to refocus on leading Tesla.
Musk to scale back role in Doge amid Tesla profit slump
The market responded positively, with Tesla shares rising 5% on Wednesday. Still, the road ahead remains uncertain, with plenty of obstacles left to navigate.
Who wants a Tesla?
Musk seemed to downplay the role that brand damage played in the drop in first-quarter sales on the investor call. Instead, he emphasized something more fleeting — an upgrade to Tesla’s best-selling Model Y that forced a shutdown of factories and pinched both supply and demand.
While financial analysts following the company have noted that potential buyers probably held back while waiting for the upgrade, hurting results, even the most bullish among them say the brand damage is real, and more worrisome.
“This is a full blown crisis,” said Wedbush Securities’ normally upbeat Dan Ives earlier this month. In a note to its clients, JP Morgan warned of “unprecedented brand damage.”
Musk’s take on the protests
Musk dismissed the protests against Tesla on the call as the work of people angry at his leadership of the Department of Government Efficiency because “those who are receiving the waste and fraud wish it to continue.”
But the protests in Europe, thousands of miles from Washington, came after Musk supported far-right politicians there. Angry Europeans hung Musk in effigy in Milan, projected an image of him doing a straight-arm salute on a Tesla factory in Berlin and put up posters in London urging people not to buy “Swasticars” from him.
Sales in Europe have gone into a free fall in the first three months of this year — down 39%. In Germany, sales plunged 62%.
Another worrying sign: On Tuesday, Tesla backed off its earlier promise that sales would recover this year after dropping in 2024 for the first time a dozen years. Tesla said the global trade situation was too uncertain and declined to repeat the forecast.
Here come the rivals
Meanwhile, Tesla’s competition is stealing its customers.
Among its fiercest rivals now is Chinese giant BYD. Earlier this year, the EV maker announced it had developed an electric battery that can charge within minutes. And Tesla’s European rivals have begun offering new models with advanced technology that is making them real Tesla alternatives just as popular opinion has turned against Musk.
Tesla’s share of the EV market in the U.S. has dropped from two-thirds to less than half, according to Cox Automotive.
Pinning hopes on cybercabs
Another rival, Google parent Alphabet, is already ahead of Tesla in an area that Musk has promised will help remake his company: Cybercabs.
One of the highlights of Tesla’s call Tuesday was Musk sticking with his previous prediction that it will l aunch driverless cabs without steering wheels and pedals in Austin, Texas, in June, and in other cities soon after.
But Google’s service, called Waymo, already has logged millions of driverless cybercab trips in San Francisco, Phoenix, Los Angeles, and Austin as part of a partnership with ride-hailing leader Uber.
A driverless future for Tesla owners?
Musk also told analysts that this driverless capability will be available on the Tesla vehicles already on the road through software updates over the air, and put a timeline on it: “There will be millions of Teslas operating autonomously in the second half of the year.”
But he has made similar promises before, only to miss his deadlines, such as in April 2019 when he vowed full automation by the end of the next year. He repeated the prediction, moving up the date, several more times, in following years.
A big problem is federal investigators have not given the all-clear that Tesla vehicles can drive completely on their own safely. Among other probes, safety regulators are looking into Tesla’s so-called Full Self-Driving, which is only partial self-driving, for its tie to accidents in low-visibility conditions like when there is sun glare.
On the positive side
In competition with rivals in the U.S., Tesla currently has one clear advantage: It will get hurt by less by tariffs because most of its vehicles are built in the countries where they are sold, including those in its biggest market, the U.S.
“Tariffs are still tough on a company where margins are still low, but we do have localized supply chains,” Musk said Tuesday. “That puts us in a strong position.”
The company also reconfirmed that a cheaper version of its best-selling vehicle, the Model Y sport utility vehicle, will be ready for customers in the first half of this year. That could help boost sales.
Another plus: The company had a blow out first quarter in its energy storage business. And Musk has promised to be producing 5,000 Optimus robots, another Tesla business, by the end of the year.
Pricey stock
Even after falling nearly 50% from its December highs, Tesla’s stock is still very richly valued based on the one yardstick that really matters in the long run: its earnings.
At 110 times its expected per share earnings this year, the stock is valued more than 25 times higher than General Motors. The average stock on in the S&P 500 index trades at less than 20 times earnings.
That leaves Tesla little margin for error if something goes wrong.