Tesla: Rainy days ahead for the electric vehicle pioneer
Published April 2 2025
Tesla has been at the forefront of the electric vehicle (EV) revolution, and for years, it appeared that the company was unstoppable. The brand, synonymous with Elon Musk’s innovation, Silicon Valley disruption, and cutting-edge technology, dominated the EV market. However, as the industry evolves, several new challenges are emerging that could potentially disrupt Tesla’s long-standing position at the top of the EV sector. From rising Chinese competitors and dwindling demand in Europe to quality control issues and backlash against its CEO, Elon Musk, the company now finds itself at a crossroads.
The rise of Chinese competitors
The electric vehicle market has become increasingly global, with China emerging as a formidable player in the EV space. For years, Tesla enjoyed a dominant position in both the U.S. and global markets, but the rise of Chinese EV manufacturers, such as BYD, NIO, and Xpeng, is beginning to change the competitive landscape.
China’s aggressive push into electric vehicles has been supported by a combination of government incentives, rapid advancements in technology, and economies of scale. Chinese automakers are now producing high-quality, affordable electric vehicles that are challenging Tesla’s dominance in key markets. In particular, BYD has become one of the largest EV manufacturers globally, surpassing Tesla in terms of annual production.
The Chinese government's commitment to sustainability and clean energy has paved the way for the rapid growth of these competitors. With support in the form of subsidies, tax breaks, and infrastructure development, Chinese automakers have been able to scale production faster and at lower costs than Tesla. This has led to more competitive pricing, which is a key differentiator in the Asian and European markets.
Tesla has responded by opening its Gigafactory in Shanghai, which helped the company make inroads into the Chinese market, but this has not been enough to prevent Chinese EV makers from gaining market share. Tesla faces the risk of being overtaken by local competitors who are better positioned to meet the specific needs of the Chinese consumer, such as affordability and familiarity with local infrastructure.
Losing Demand in Europe
Tesla’s presence in Europe has been a cornerstone of its international expansion, but recent signs indicate that demand for Tesla vehicles in the region is starting to wane. Europe has been a strong market for electric vehicles, with increasing government regulations pushing for higher adoption of EVs. However, despite its early success, Tesla is now encountering stiff competition from both traditional European automakers and new entrants in the electric vehicle market.
Traditional automakers like Volkswagen, BMW, and Mercedes-Benz have aggressively ramped up their EV offerings, and their vehicles are often tailored to the specific preferences of European consumers. Tesla’s market share in Europe has gradually declined as these competitors offer well-established brands, superior build quality, and a more seamless integration into the European automotive landscape. Tesla’s image in Europe, once seen as the undisputed leader in electric mobility, is now being overshadowed by more competitive offerings.
European governments are introducing stricter regulations on emissions and environmental standards, which have led to increased scrutiny of Tesla's products. While Tesla has enjoyed favorable policies in Europe, some governments are now putting pressure on the company to improve the safety and environmental performance of its vehicles, especially in the wake of some high profile accidents involving Tesla’s Autopilot system.
The rising supply of more affordable and attractive EVs from competitors, combined with concerns about Tesla's product quality and after-sales service, has caused some consumers to reconsider their allegiance to the brand. With competitors catching up in terms of battery technology, performance, and driving range, Tesla's once-dominant position in Europe appears to be slipping.
Backlash Against Elon Musk
Elon Musk, Tesla’s CEO and visionary leader, has long been the face of the company. His unique personality, bold statements, and ambitious goals have made him a polarising figure, attracting both adoration and criticism. However, in recent years, the backlash against Musk has intensified, and this is beginning to have an impact on Tesla’s brand image.
Musk's controversial behavior, particularly on social media, has often overshadowed the company's achievements. His frequent use of Twitter to voice his opinions on everything from politics to personal issues has alienated a segment of Tesla’s consumer base. Moreover, Musk's handling of Tesla’s labor practices, including reports of unsafe working conditions at Tesla factories, has drawn criticism from labor unions, activists, and policymakers.
Musk's erratic behavior has also extended to his leadership decisions, such as his acquisition of Twitter (now X), which has been seen by some as a distraction from Tesla’s core business. Many investors and analysts have questioned whether Musk is spreading himself too thin, especially as Tesla faces increasing competition from other EV manufacturers.
While Musk's ability to generate media attention and his outspoken personality have played a role in Tesla's meteoric rise, it’s clear that his controversial behavior is now causing reputational damage. As his public persona becomes more divisive, some Tesla enthusiasts and investors are growing concerned that his leadership could ultimately harm the company’s long term prospects.
A Significant Stock Price Drop
Tesla’s stock has long been a darling of Wall Street, with the company’s stock price soaring to unprecedented heights as investors placed their faith in Musk’s vision and the promise of electric vehicles. However, in recent months, Tesla’s stock has experienced a significant decline. The drop in stock price is a reflection of various factors, including increasing competition, supply chain issues, and a growing sense of uncertainty about Tesla’s future prospects.
One of the most noticeable signs of Tesla’s stock price volatility came in the wake of Musk’s acquisition of Twitter. Many investors expressed concern that Musk’s attention would be divided between running Tesla and managing the social media platform, leading to a lack of focus on Tesla’s core business. As a result, Tesla’s stock price dropped significantly in late 2022 and into 2023, marking a departure from the meteoric rise the company had experienced in previous years. More recently, Tesla’s share price dropped by over 45% from a 52 week high in December 2024 of $489.
The stock price decline has been compounded by the increasing skepticism of Wall Street analysts, who are questioning whether Tesla can maintain its competitive advantage in a market that is becoming more crowded by the day. Some analysts have downgraded the company’s stock, citing concerns over its ability to sustain growth in the face of rising competition, regulatory scrutiny, quality control issues, and Musk’s involvement in worldwide politics.
While the drop in Tesla’s share price is not necessarily indicative of a long-term collapse, it does signal that the company is no longer immune to the pressures of a rapidly changing market. Investors are becoming more cautious about the future, and Tesla’s once-unassailable position as a high-growth stock is now under threat.
High Price-to-Earnings (P/E) Ratio
Tesla has long been associated with high growth, and this is reflected in its price-to-earnings (P/E) ratio, which has consistently been among the highest in the automotive sector. A high P/E ratio suggests that investors are willing to pay a premium for Tesla’s stock, based on expectations of future growth. However, as competition increases and market conditions change, Tesla’s high P/E ratio is starting to raise eyebrows.
The company faces new challenges, such as increasing competition from established automakers and new entrants, the question arises whether Tesla can continue to meet these lofty expectations. As Tesla’s growth slows or faces greater obstacles, its P/E ratio could come under pressure, potentially leading to a significant correction in the stock price, more so than the recent decline in the stock price.
Tesla’s valuation remains heavily tied to its future growth prospects, rather than its current performance. As the EV market matures and competition intensifies, Tesla may struggle to maintain the same level of growth that it once enjoyed. If Tesla fails to meet investor expectations, its high P/E ratio could become a source of volatility in the stock market.
Retaliation to U.S. Tariffs
Trade tensions between the United States and China have also affected Tesla’s operations. The ongoing trade war and tariffs imposed on Chinese imports have had a significant impact on Tesla’s supply chain. While Tesla has expanded its manufacturing capabilities globally, particularly in Shanghai, the company has still faced challenges related to tariffs and geopolitical risks.
The U.S. Government’s tariffs on Chinese-made goods have led to higher production costs for Tesla, which will ultimately result in higher prices for consumers. Tesla has attempted to mitigate these costs by shifting some production to non-tariffed regions and increasing production in its Gigafactory in Shanghai. However, this has not completely shielded the company from the impact of the trade war.
Retaliatory tariffs from China on U.S. imports could have further implications for Tesla’s operations in the country. As tensions between the U.S. and China continue to escalate, Tesla may find itself caught in the crossfire of international trade disputes.
Quality Issues with the Cybertruck
Tesla’s highly anticipated Cybertruck has been one of the most talked-about vehicles in the company’s history. However, it has faced numerous delays, design issues, and quality control problems that have raised concerns about the company’s ability to deliver on its promises. One major issue has been the rusting of its stainless steel exterior, with some owners reporting the appearance of orange rust spots after exposure to rain, contradicting the vehicle’s expected durability. The unique design of the Cybertruck has led to challenges in manufacturing precision, with early reviews highlighting misaligned panels and inconsistent surface finishes. These issues have raised doubts about the vehicle's overall build quality.
Tesla’s ‘Armour Glass’ shatters
The Cybertruck was initially slated for release in 2021, but delays and production issues pushed its launch into 2023. Beyond external aesthetics, the Cybertruck has experienced problems with its functionality and safety features. Some owners have reported misaligned doors, uneven surfaces, and even sharp edges that pose safety risks. In particular, the vehicle’s exoskeleton design has led to sharp edges in some areas, which could potentially cause injury. These quality control issues have prompted some early adopters to regret their purchase, with concerns about public perception and the safety of their families.
Despite these concerns, Tesla has acknowledged the challenges and is working to improve the Cybertruck's production quality. Musk has emphasised the importance of achieving precision in manufacturing, drawing comparisons to the tight tolerances of LEGO bricks. However, external reviews and customer feedback suggest that Tesla still has work to do to. Addressing these quality issues will be essential for Tesla to maintain consumer confidence and succeed in the increasingly competitive electric vehicle market.
Loss of Market Share
Tesla’s market share in the electric vehicle industry has been slowly eroding as competitors ramp up production. While Tesla once enjoyed a commanding share of the global EV market, it now faces increasing competition from both established automakers and new entrants, especially in key markets like China and Europe. The company’s market share has gradually declined as new electric vehicles from companies like Rivian, Lucid Motors, and established brands like Volkswagen and Ford flood the market. In Q1 2025, analysts were anticipating deliveries between 360,000 - 390,000, with actual deliveries being 336,681, a 13% decline compared to Q1 2024.
As competition intensifies and consumers become more discerning, Tesla will need to fight harder to maintain its market share. The company’s ability to adapt to changing consumer preferences, improve its product quality, and stay ahead of the competition will be crucial in determining whether it can continue to lead the electric vehicle revolution.