Wild swings in the price of Tesla (NASDAQ: TSLA) stock has long been the rule, not the exception. The five-year share price chart resembles a snapshot of the Rocky Mountains, with towering peaks and deep valleys.
So far in 2025, Tesla shares are down 39%. Yet they jumped 7.6% yesterday (12 March), and are still up nearly 600% over five years!
Here are three reasons the stock has slumped this year.
Falling sales
The most fundamental reason for the decline is that sales of Tesla’s electric vehicles (EVs) have been falling. Automotive revenue in the final quarter of 2024 was down 8% year on year to $19.8bn. Total revenue was $25.7bn, up 2% from the previous year but below analysts’ expectations of $27.1bn. Operating profit fell 23% to $1.6bn.
On 2 April, Tesla will report global sales for the first quarter. They might not be pretty. According to the European Automobile Manufacturers’ Association, sales in Europe were down 45% in January compared to the same month last year. Sales have reportedly fallen in China and Australia too, though they were up in the UK and Ireland.
Previously, Wall Street was expecting over 400,000 deliveries in the quarter, but now some estimates see the figure falling below the 387,000 units from a year ago. For all of 2025, Wall Street currently projects sales of about 2m EVs, up from 1.8m in 2024. That’s well below CEO Elon Musk’s earlier promise of 20-30% growth in full-year vehicle sales.
Valuation disconnect
On paper, Tesla stock appears grossly overvalued. Even after losing nearly half its value since mid-December, it’s trading on a price-to-earnings ratio of 121. The price-to-sales multiple’s still 8.9, despite sluggish top-line growth.
If Tesla is purely a car company, then the valuation is disconnected from reality. Even Musk echoed this back in July, saying investors should sell their shares if they didn’t believe Tesla would “solve vehicle autonomy”.
Will it solve this? We might find out soon, as Musk’s promised to launch paid robotaxi rides in Austin, Texas, by June.
Of course, he’s been saying that full self-driving cars were just round the next bend since 2016. However, the firm’s under massive pressure to finally deliver these now, while Austin has few regulations preventing them from happening (unlike California).
The stakes are high. Previously, the firm has blamed customers for accidents involving its driver-assistance systems. But with robotaxis, Tesla could presumably be liable if anything goes wrong.
While the potential long-term rewards for a successful robotaxi network are huge, there are notable risks.
Musk himself
Finally, Musk’s vocal backing of President Trump has alienated some existing and potential Tesla customers. On Tuesday (11 March), Trump promised to buy a new Tesla in a TV commercial-style appearance with Musk outside the White House. That’s despite serving presidents not being allowed to drive on public roads. Openly aligning the brand with Trump, who opposes EV subsidies, seems at best contradictory.
As always, analysts are split on where the stock could head over the next year. For example, JP Morgan sees a 51% plummet to $120, while Wedbush Securities reckons it could more than double to $550.
Due to the high valuation and uncertainty, I have no plans to invest.
This post was originally published on Motley Fool
