Can Tesla shares recover after 'toxic' Musk controversy and Trump tariff chaos?

Christmas 2024 was the high watermark for Tesla investors, with the carmaker hitting a record $489 (£371) per share.

Investors were optimistic that co-founder and CEO Elon Musk's relationship with US President Donald Trump and the prospect of a less hostile regulatory environment for self-driving cars would help accelerate Tesla's momentum.

But shares in the group have plunged by a third this year as orders for its electric vehicles have plummeted across many major markets, and the group has once again found itself exposed to US-driven global trade disruption.

In the first three months of 2025, sales of the company's EVs plummeted 62 per cent in Germany, 41 per cent in France and 25 per cent in Norway, where nearly 0 in ten new car purchases are electric.

Tesla sold 336,681 vehicles during the period, far below the 386,810 recorded in the previous quarter and the 390,000 forecast by analysts.

Trump's announcement of sweeping tariffs last week has only exacerbated Tesla's worries, raising the threat of slowing economic growth and consumer spending.

Is worse to come for the automotive giant - or can it turn things around fast?

Musk's close involvement with Trump's administration, whether donating to his presidential campaign or heading the Department of Government Efficiency [Doge], appears to have alienated many consumers.

'Never in automotive history has the CEO of a car brand become so deeply involved in divisive geopolitics,' says motoring expert Quentin Willson.

The former Top Gear presenter also says Tesla suffers from an 'ageing model line up that's only been mildly refreshed,' unlike Chinese carmaker BYD - often nicknamed the 'Tesla Killer'.

BYD's revenues overtook Tesla last year after soaring by 29 per cent to $107billion, driven by high demand for models like the Seagull, Dolphin, and Atto 3.

China's share of the global EV market has rapidly expanded over the past decade to account for about three-quarters of all sales, largely thanks to generous publicly-funded subsidies.

From 2009 to 2023, the Chinese Government provided about $230.9billion of support to its country's EV sector, according to the Center for Strategic & International Studies think tank.

This included buyer rebates, exemptions from sales taxes, research and development programmes, and spending on infrastructure like charging poles.

Many Chinese EV businesses also benefit from having a vertical integration strategy, controlling key elements of the supply chain, that could themselves receive generous government subsidies.

In BYD's case, it produces everything from batteries to power electronics, electric motors, and semiconductors and controls mineral rights in Brazil's 'Lithium Valley'.

The setup gives them greater control over technology, supply reliability, and, most importantly, costs, meaning their vehicles can be sold for a profit at low prices.

Tesla still has a large fanbase that lauds the company's pioneering role in the EV sector and its fast, green, comfortable motors, with their autonomous driving features and over-the-air software updates.

'Tesla's overarching aim has always been to accelerate the world's transition to sustainable energy,' says Dan Lane, lead analyst at Robinhood UK.

'Yes, cars have been the medium so far, but it's that ideal that most die-hard fans buy into.'

That's not to say the group has fallen short in the sales department. The Tesla Model Y was the world's top-selling car in 2023, with more than 1.2 million units purchased, making it the first EV to achieve such a feat.

Tesla's total annual deliveries have shot up more than fourfold since 2019, from 367,656 to 1.79 million last year.

However, 2024 was the first time in 13 years that the firm's sales declined. Aside from considerable Chinese competition, the business has experienced highly publicised issues with its Cybertrucks.

Since launching in November 2023, the polygonal pickup has been recalled eight times, including over faulty windshield wipers, trapped accelerator pedals, and, on three occasions, detaching trims.

Musk once predicted that the vehicle would enjoy 250,000 orders annually, but Tesla is reportedly sitting on $200million worth of unsold Cybertrucks.

While the company is partly compensating for this with high demand for its Model Y, critics regularly lambast the auto manufacturer for its ageing line-up of offerings.

Ben Nelmes, chief executive at transport research organisation New AutoMotive NGO, said: 'Tesla is competing in the most innovative segment of the car market, yet they haven't brought out a new model for the mass market since the Model Y in 2020.'

Even if the recently upgraded Model Y, codenamed 'Juniper', sells well, Tesla has its work cut out trying to compete with an ever-growing pool of cheaper EVs.

'Tesla needs the new Model Y to appeal to consumers' heads and to their hearts to succeed, but there are many compelling other options out there, and competition is increasingly focusing on price,' adds Nelmes.

Despite recent struggles, Tesla remains a very profitable, innovative carmaker with a strongly recognisable brand name. The firm's share price drop has nonetheless left investors worried.

Matthias Schmidt, founder of data intelligence organisation Schmidt Automotive Research, has blunt advice for Tesla.

'Fire the – toxic – CEO ASAP,' the Hamburg-based analyst says.

'Keep him as a back-seat advisor, but perhaps ask him to refrain from speaking, publicly at least. He has turned from an asset to a liability.'

Quentin Willson and Ben Nelmes think Musk should limit his political interventions, which have made the South Africa-born billionaire a deeply polarising individual.

Schmidt also thinks Tesla should invest more in new products and sectors, with spending redirected away from autonomous driving and 'into more emotional vehicles for private consumers'.

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In the more immediate future, the group's performance will depend on how badly Trump's tariffs - and the retaliatory measures by other countries - impact demand.

Tesla, as well as US automotive rivals Ford and General Motors, were among the most exposed stocks the last time US-China trade conflict broke out in 2018, according to analysis by trading platform IG.

Shares proved volatile in 2018 as Tesla faced higher production costs and sales declines as tariffs increased the price of imported components and vehicles.

Musk reportedly pleaded with Trump personally to back off from imposing the most recent tariffs, which include a 25 per cent tax on US automobile imports.

China, one of Tesla's largest markets, has responded with an 84 per cent tariff on all US goods imports.

The resulting global turmoil could further hit demand for Tesla vehicles.

IG market analyst Axel Rudolph said: 'Tesla may assemble half of its vehicles in the US, but President Trump's 25 per cent tariffs are hitting where it hurts - on imported parts and raw materials.

'Musk has warned that the cost impact is 'not trivial,' signalling that even domestic production isn't shielding the company from rising expenses.

'With fears growing that Musk's political controversies are weakening demand, a 'perfect storm' is now brewing for the EV maker.'

But recent woes have not stopped large numbers of retail investors backing the business.

Robinhood's Lane notes that Tesla was the most popular buy among Robinhood UK's investors last month and the third-most popular in February.

John Moore, senior investment manager at RBC Brewin Dolphin, said commentary around the firm 'includes a wide range of price expectations, from steep declines to significant upside potential'.

He added: 'If you are considering investing in the company, try to separate your opinions on the individual or individuals most associated with it from that decision.

'And, if you do hold any stock in the company, ensure it is part of a much wider, balanced portfolio of investments.'