Tesla Needs a Better Story

It’s been a bad month for the stock market. But it’s been a terrible month—in fact, a terrible year—for Tesla. Even after rebounding since Monday, perhaps with some help from Donald Trump’s South Lawn salesmanship, Tesla’s stock price is down almost 40 percent since January 1.

Some of that drop is down to concrete issues with Tesla’s core car business: Sales last year fell for the first time in more than a decade, and Wall Street analysts are now estimating that they will have fallen again in the most recent quarter. Tesla is facing fierce price competition in China, where its year-over-year sales fell by 49 percent in February, and steeply declining sales in Western Europe. Although the company has promised that it will be rolling out new, more affordable models later this year, details have been sparse at best.

The most important driver of Tesla’s share slump, however, can be summed up in two words: Elon Musk. Tesla has always been a “story stock,” which is to say the sort of investment whose price depends less on a company’s economic fundamentals and more on a story of what its future will be. Tesla’s problem right now is that the hero, and narrator, of its story has gone AWOL.

Investor expectations of what Tesla is going to achieve have certainly changed over time. In the past, investors were focused on Tesla’s potential to corner the global electric-vehicle market. Today, that ambition has receded, as competition—particularly from China—has intensified. Instead, investors now envision the company dominating the future market for self-driving cars and AI robotics. But the throughline of the Tesla story has always remained the same: the idea of Musk’s genius and ability to guide the company into the future. “It is almost impossible to separate Tesla, the company, from Musk,” the finance professor Aswath Damodaran has written previously. “What you believe about one will drive what you believe about the other.” And it’s because investors have bought into Musk’s over-the-top visions of Tesla’s future that, even now, the company’s shares trade at an outrageous price-to-earnings ratio, and its market cap is greater than that of the next nine biggest car companies combined.

The problem for Tesla at the moment is that investors’ faith in Musk has been shaken. His political activities—not only his work for the Trump administration but also his public support of the far-right AfD party in Germany—have led to a backlash against Tesla that certainly seems to have depressed sales in the United States and Europe. His mercurial social-media habits and goofy displays such as waving around a chain saw onstage at the Conservative Political Action Conference are not reassuring to major investors. The reverse: A new Morgan Stanley investor survey found that 85 percent of respondents think that Musk’s political involvement is having “a negative or extremely negative impact on Tesla’s business fundamentals.”

Aside from all the noise, the simple reality is that Tesla now seems to be far down on the list of Musk’s priorities, behind DOGE, SpaceX, his new AI venture, and X. Musk is running a government agency, serving as the CEO of three companies, funding political campaigns, threatening politicians with potential primaries, and posting nonstop on social media. In the most literal sense, he just isn’t showing that much interest in building cars any more. Since the beginning of the year, he has offered no real vision of how Tesla will deal with challenges such as the global rise of highly competitive EV manufacturers such as China’s BYD. In an interview with Fox Business on Monday, he conceded that he was having “great difficulty” running all of his enterprises; about the best he could offer investors was a quote from a Monty Python movie: “Always look on the bright side of life.” Musk’s seeming indifference to the car business has become so noticeable that in a note to investors this week, the Wedbush Securities analyst Dan Ives—arguably the biggest Tesla bull on Wall Street—criticized him for “showing no attention to Tesla during this turbulent time.”

The appearance at the White House with Trump on Tuesday for what was effectively a car commercial seemed like an implicit recognition by Musk that he needs to change his ways (or at least pretend to do so). As Trump posed in a Tesla Model S that he said he was buying, Musk promised that the company would double its U.S. production over the next two years. Neither man has a great record of keeping promises, but the event was a sign that Musk was doing something to stop the bleeding. Some investors, at least, liked the story: By market close yesterday, Tesla’s stock was up more than 10 percent from its Monday low.

Whether that will be enough to make up for the losses of the past four months is another question. Tesla investors are used to volatility; since 2018, the company’s stock price has fallen 40 percent or more on eight different occasions. And story stocks can bounce back quickly if they can recapture investors’ attention and belief. But that will require Musk to demonstrate more conviction and interest in the way he talks about, and runs, Tesla. Right now, he looks like a storyteller who’s lost the plot.