Tesla’s Trouble

CRITICAL CONTEXT:

To understand the context of this article, simply highlight a bullet point of interest below and select ‘Tell me more’ in our app (go here).

• Evolution of Political Partnerships: A timeline of the relationship between Elon Musk and President Donald Trump.

• Government Efficiency Initiatives: An overview of the Department of Government Efficiency’s cost-cutting measures and their subsequent effects.

• Trade Policy Developments: A review of the second Trump Administration's tariff policies.

A PROBLEM: TESLA’S WANING DEMAND

How Much Have Sales Dipped?

In early 2024, Tesla warned investors of “notably lower” sales claiming this would occur because they would focus on developing a new vehicle. Recent data confirms severe declines in sales:

Domestic Downturn: 

• While the broader U.S. EV market grew by 7.3% in 2024, Tesla’s domestic sales turned negative. February 2025 saw a 10% month-over-month drop.

• The used Tesla market tells its own story—average prices have declined to $30,000, nearly $10,000 below comparable non-Tesla EVs, a dramatic fall from over $70,000 in 2022.

Global Market Turbulence:

Europe: In a booming EV market, Tesla sales fell 45% year-over-year in January and February of 2025. Specific markets have been hit hard:

• Germany: Down 59%, with February’s figures plunging 76%.

• France: Down 45% (Feb ‘24 vs Feb ‘25) Portugal: Down 53% (Feb ‘24 vs Feb ‘25)

• Italy: Down 54% (Feb ‘24 vs Feb ‘25)

• Norway and Denmark: Down 44% and 48%, respectively (Feb ‘24 vs Feb ‘25)

The UK, after an initial drop, rebounded briefly with 21% growth in February.

China: Facing relentless competition from BYD, Tesla has recorded five consecutive months of negative growth in one of the world’s largest EV markets.

Australia & Canada: Sales in these regions have tumbled by 72% (Feb ‘24 vs Feb ‘25) and 70% (Dec ‘24 - Jan ‘25), respectively.

These figures are not just numbers—they signal a shifting tide that poses serious questions about Tesla’s adaptability in a rapidly evolving market. The company is facing multiple challenges at once.

CHALLENGE #1: POLITICALLY MOTIVATED BOYCOTTS AND VANDALISM

At the forefront of public attention is Elon Musk’s prominent role in the Department of Government Efficiency. Musk's involvement has been associated with broad layoffs, closures of humanitarian departments, and other contentious budget cuts. As a result, Tesla, under Musk's leadership, has become a lightning rod for public dissent.

Nationwide Incidents

Protests and vandalism have erupted in several U.S. states specifically targeting Teslas and Tesla dealerships:

• Las Vegas, NV: Five Teslas were set on fire at a collision center with Molotov cocktails, graffiti declaring “RESIST” scrawled in protest.

• Kansas City, MO: Two Cybertrucks were deliberately destroyed in an arson attack.

• Dedham, MA: Three Teslas were defaced with spray paint and damaged tires.

• Seattle, WA: A fire damaged four Cybertrucks at a local facility.

• Tigard, OR, and Littleton, MA: Tesla facilities were damaged by gunfire and arson attacks.

• Owings Mills, MD: Vandals defaced a Tesla dealership with hate symbols and anti-Musk slogans.

Law enforcement has arrested 3 suspects for arson who now face up to 20 years in prison. This wave of aggression is most pronounced in Democratic-leaning states, traditionally Tesla’s stronghold, signaling a significant shift in brand perception and instilling fear in potential buyers.

CHALLENGE #2: TARIFFS AND GLOBAL SUPPLY CHAINS

As sales falter, international trade policies add another layer of complexity to Tesla’s troubles. The company’s reliance on a global supply chain has left it vulnerable to the abrupt shifts in policy currently underway in the US.

Tariff Rundown:

Since taking office in January, President Trump's administration has ushered in a new era of protectionist policies and tariffs against the US’ largest trading partners.

• China Tariffs: The Trump administration raised tariffs on Chinese imports from 10% to 20% on March 4, 2025, prompting retaliatory measures from China and escalating trade tensions.

• Canada-Mexico Tariffs: Imports from Canada and Mexico now face a 25% tariff, with exceptions for Canadian energy products and potash at 10%.

• European Tariffs: A 25% tariff on steel and aluminum imports from all trading partners, including Europe, led to EU retaliatory tariffs worth €26 billion, straining supply chains.

• Global Auto Tariffs: A 25% tariff on imported cars and certain auto parts, effective April 3, 2025, is expected to raise vehicle prices in the U.S. by $5,000 to $15,000.

Tesla, as well as other US automakers, are exposed to these markets, often without substitutes.

China & Tesla’s Dependence

Tesla relies heavily on Chinese suppliers for battery materials, making it vulnerable to trade policy shifts. Nearly 40% of Tesla’s battery materials come from China, including key inputs for its lithium-ion batteries. China is Tesla’s largest supplier of battery materials, with several major companies providing essential components.

Key suppliers include:

• Ganfeng Lithium (China) – Lithium products.

• Novoray (China) – Inorganic compounds.

• Zhejiang Huayou Cobalt (China) – Cobalt. China’s control over the supply chain gives it leverage over Tesla’s production and pricing.

For further insight, check out our deep dive on China’s Race for Electric Vehicle Dominance.

Canada’s Role in Tesla’s Strategy

Canada has been a crucial part of Tesla’s supply chain, helping the company reduce reliance on Chinese materials. However, new tariffs and targeted Canadian countermeasures threaten to disrupt this strategy and increase costs. Tesla has made key investments in Canada to diversify its supply chain, reducing dependency on China.

Notable initiatives include:

• Battery equipment manufacturing facility in Markham, Ontario.

• Acquisition of Hibar Systems Ltd. (now Tesla Toronto Automation ULC).

• Sourcing critical minerals like nickel, which the U.S. lacks in sufficient supply.

The new tariffs on Canadian imports could significantly raise Tesla’s input costs, undermining its supply chain strategy. Canada has retaliated by specifically targeting Tesla, eliminating EV tax credits for Tesla vehicles while maintaining them for other manufacturers, illustrating how tariff policies may impact Tesla consumption as well.

CHALLENGE #3: COMPETITION AND INNOVATION CHOICES

Tesla’s reputation for technological innovation has been a core part of its appeal. However, its heavy investment in autonomous driving and robotics has come at the expense of refreshing its core vehicle lineup.

Stagnant Core Offerings

Over the past five years, Tesla has introduced only one new model—the Cybertruck—which has struggled to gain traction and has faced eight separate recalls as of March 2025. Meanwhile, the Model 3 and Model Y have seen minimal updates. They are anticipated to launch their long anticipated budget Model Q this year.

Competitive Pressures

• Volkswagen’s ID.4 is now Europe’s best-selling EV, with sales tripling year-over-year, while the ID.7 has grown by 657%. Tesla is the only top 10 automaker to report negative sales growth.

• BYD is dominating China and emerging markets with its affordable lineup. The average BYD vehicle in China costs $22,000 compared to Tesla’s $45,000.

• In January 2025 alone, BYD sold 300,538 new energy vehicles (NEVs) in China—nearly five times Tesla’s sales of 63,238 units.

Controversial Claims

• In March 2025, Elon Musk acknowledged that vehicles equipped with Hardware 3 (HW3) would require upgrades to Hardware 4 for unsupervised autonomous driving. This frustrated customers who had paid up to $12,000 for the Full Self-Driving (FSD) package under the assumption their vehicles were already equipped for full autonomy.

• A class-action lawsuit in Australia alleges Tesla misrepresented its vehicles' range performance and FSD hardware readiness. Similar lawsuits have been filed globally.

Innovation Choices

Tesla’s focus on long-term projects like robotics (Optimus) and unsupervised FSD may be ambitious and have strong potential, but it has left the company vulnerable to competitors addressing immediate consumer demands—affordability, range improvements, and faster charging solutions.

SINKING STOCKS AND UNPRECEDENTED PROMOTION

The confluence of these challenges has taken a steep toll on Tesla’s market valuation. Since the beginning of 2025, Tesla’s stock has fallen by 32.73% (31st March), igniting calls for leadership change by some investors. In an unprecedented twist, the Trump administration stepped in to promote Tesla.

White House Promotion

• The White House itself was temporarily transformed into a Tesla showroom, with President Trump branding the company as “the future of American automotive excellence.”

• Trump’s personal pledge to purchase an $80,000 cherry-red Model S was a clear signal of the administration’s support.

• Commerce Secretary Howard Lutnick promoted Tesla stock on Fox News during a period of volatility. This is considered unlawful based on federal ethics rules and the Hatch Act.

This has led to an uptick in the Google search “buy a tesla” in traditionally republican strongholds which are not historically significant markets for the company. 

THE LIMITS OF U.S. PROTECTIONISM

While the Trump administration’s protectionist policies aim to shield Tesla domestically, the automaker’s international challenges are daunting. Global markets are critical for Tesla’s long-term growth, yet its international sales are trending in the wrong direction. This decline highlights growing consumer backlash against Tesla's association with the Trump administration, as anti-Trump sentiment intensifies abroad.

Domestic demand, bolstered by political support, cannot fully compensate for these losses and may even exacerbate through an increased Trump-Tesla brand association. Tesla’s dependence on a fragile global supply chain, particularly for raw materials like lithium and cobalt sourced from China, further complicates its ability to remain cost-competitive amidst trade disruptions and fluctuating tariffs.