Tesla will likely report thinner profit margins in its quarterly and full-year results Wednesday, a result of its first drop in annual sales in its history last year and a price war in the EV sector from increased competition. But the company’s large swaths of investors seem more focused on CEO Elon Musk’s bromance with President Donald Trump than the troubling noises coming from the car company behind Musk’s fortune.
Shares of Tesla are up 57% since the close of trading on Election Day — even with some of the company’s troubles, which include a change in federal emission regulations that could reduce the billions of dollars it gets from the sale of regulatory credits, and increased competition for electric car buyers. Tesla also nearly lost its title as the world’s largest maker of EVs to Chinese automaker BYD at the end of last year, even though BYD has yet to enter the US market. But with the growing sales of EVs in China, Tesla seems likely to lose that title this year, especially if its sales continue to decline.
But Musk’s close connection to Trump has investors hoping that the new administration will clear the way for some of his grand plans, including approval of true self-driving cars that don’t have accelerator or brake pedals or steering wheels, which Musk has promised for years. Aside from regulations, however, Tesla’s technology — including “Full Self Driving,” or FSD — has not lived up to Musk’s claims and promises in the past, and has faced investigations into its safety by the National Highway Traffic Safety Administration. The current version of FSD requires a person to be in the driver’s seat, ready to take control of the car should a problem arise.
Musk insists, however, that truly driverless “ Cybercab ” robotaxis from Tesla will be available by 2026 and that its service will make the company by far the most valuable in the world. While even Musk admits “I tend to be a little optimistic with time frames,” he also said that only regulatory hurdles are keeping keep his next generation of self-driving robotaxis from being a reality soon. There are analysts who agree with his view.
“I think the Trump tailwind is just starting for Musk and Tesla, and the value of autonomous vehicles and FSD is going to be unleashed,” said Dan Ives, analyst with Wedbush Securities and a Tesla bull. “In our view Tesla continues to be the most undervalued AI play in the market.”
‘A demand problem’
But there are still Tesla bears who don’t believe that autonomous driving is as close as Musk promises. They also say that the softening growth in the American electric vehicle market is a major problem for the company. Shares of Tesla have lost 17% of their value since their peak a month ago, despite still being far above the pre-election price.
Gordon Johnson, an analyst who is one of the most vocal critics of Tesla, says the controversy surrounding Musk, including his support for Trump and far-right political parties in Germany and the UK , is hurting demand for Tesla cars among liberal American and European buyers who are more inclined to spend the money on an EV.
“I think it’s hurting Tesla tremendously. He’s gone full MAGA,” said Johnson. “Many Tesla buyers won’t consider buying a Tesla again.”
Trump signed an executive order on the first day of his second term vowing to end tougher emission standards put in place during the Biden administration . Those rules didn’t just govern what came out of a gasoline engine’s tailpipe. They also enabled makers of cars that polluted too much to buy “regulatory credits” from manufacturers of zero-emissions cars, like Tesla, to bring themselves into compliance.
Tesla is by far the greatest beneficiary of those purchases: It reported $2 billion in credit sales in the first nine months of 2024. Although some of those credits come from automakers complying with state regulations, rather than federal regulations, Trump has also vowed to block those tougher state emission rules, although a court fight over such a move is virtually certain.
Investors will be looking for guidance from Musk and Tesla on Wednesday on the future of those credit sales.
Trump has also vowed to eliminate a $7,500 tax credit to EV buyers, a move that could further cripple the EV market in the United States. Automakers would likely further cut the price of EVs to make them more competitive with gasoline-powered cars.
It’s once again not clear when such a move would take effect. But Musk is on record saying he approves of removing what he called a “subsidy” for EV sales. Some analysts argue that legacy automakers — which are losing money on all their EVs, largely due to startup development costs — are more likely to pull back on their EV production and offerings altogether, and thus provide less competition for Tesla.
The end of the credit “will widen Tesla’s competitive moat by making competing EV models even more uneconomic, as we believe TSLA is the only profitable manufacturer of EVs,” wrote Garrett Nelson, analyst for CFRA Research, in a note to clients the day after the election. “For these reasons, we now view Tesla shares as deserving of higher multiples, but acknowledge challenges in the near term.”
But Johnson said the loss of the EV tax credit will make it more difficult for Tesla’s cars to compete with gasoline-powered cars. And the company already has more capacity to build cars than it has buyers.
“It’s a huge negative for Tesla,” Johnson said. “They have a demand problem. They can’t sell out their existing capacity. Nine out of 10 car buyers are choosing gasoline-powered cars, not EVs. This makes EVs less competitive.”
Tesla could respond to the loss of EV tax credit in 2019 by cutting the price of its vehicles, just like it did when an earlier version of the tax credit was sunset for Tesla buyers in 2019. And with its profits from EV sales, it can cut prices more than its legacy automaker competitors. Even with the tax credit, Tesla has been responding to slowing demand and greater EV competition with a series of price cuts in recent years, squeezing its profit margins.
Tesla might still be able to adapt
There is also the question of how focused Musk has been on running things at Tesla, as he spends much of his time and attention in Mar-a-Lago or Washington DC. He has always had a broad range of other companies and interests, including rocket and satellite company SpaceX, social media platform X and artificial intelligence company xAI, among others. He now has an office at the White House as he focuses on plans to identify federal programs that can be cut by the new administration, to further take him away from the Tesla offices and factories where he once worked around the clock.
This past week, Tesla rolled out an updated version of the Model Y, its best-selling car, but there was no event hosted by Musk to hype the changes, as he has done for all past model roll outs. He has ambitious goals for new vehicles, including a lower-priced model, as well as the Cybercab. But even some Tesla bulls have doubts about Musk’s target dates.
“Hitting target dates for Tesla is like the Jets draft picks. They’ve not been very accurate,” Ives, the Wedbush Securities analyst, said.
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