Tesla Loses $1T Crown: What's to Blame & How Should You Play Now?

U.S. electric vehicle and tech giant Tesla’s TSLA market cap slipped below the coveted $1 trillion mark yesterday, as shares tumbled more than 8% to close at $302.80. This marked the fourth straight day of decline, with the stock plunging 16% in just four sessions, erasing $186 billion in market value. Tesla’s valuation now stands at around $974 billion, wiping out most of its post-election gains. The stock had surged in the last two months of 2024, fueled by Trump’s election victory and CEO Elon Musk’s ties to the new administration. However, 2025 has been a rough ride so far, with Tesla shares down 25% year to date.So, what’s behind this steep drop? And is this the “buy-the-dip” moment investors have been waiting for, or do Tesla’s challenges make it too risky to jump in now? Let’s dive in.TSLA January Sales Slump but Seasonality May Be in PlayTesla’s sales took a hit last month, with sharp declines across key markets. In Europe, the company sold 9,945 vehicles — down 45% year over year — while overall battery electric vehicles (BEV) sales in the region soared 37%, according to the European Automobile Manufacturers’ Association. Tesla’s sales in Germany dropped to 1,277 units, the lowest since July 2021, while sales in France plunged 63%, the weakest since August 2022. In the United Kingdom, Tesla registered fewer vehicles than China’s BYD Co Ltd BYDDY for the first time ever.China also saw a slowdown, with Tesla’s January sales falling about 15% year over year, based on data from the China Passenger Car Association. In the United States, Tesla sold roughly 42,000 vehicles, down 13% year over year, per numbers tracked by Freedom Capital Markets.  Tesla’s U.S. BEV market share slipped from 59% in January 2024 to 45% in January 2025, according to Wards Auto.The decline highlights growing challenges for Tesla after it reported its first-ever annual dip in global vehicle deliveries in 2024.  And that’s increasing pressure on Musk to launch affordable models and accelerate the push for autonomous driving—the cornerstone of Tesla’s long-term vision.However, we should not forget that January is historically the slowest month for car sales, and a weak start doesn’t necessarily mean a weak quarter or year. So, this slump may not be entirely alarming. Some industry watchers also point to inventory shortages in certain markets following Tesla’s aggressive year-end push to boost deliveries. Additionally, the ongoing Model Y refresh could have disrupted sales, as some buyers likely held off on purchases while waiting for the updated version.Still, investors are seemingly getting uneasy, opting to sell off rather than wait for potential improvements from new models and upcoming self-driving features. Whether this dip is just a seasonal blip or a sign of deeper issues remains to be seen.Tesla’s FSD Disappointment in China Fuels Investor ConcernsTesla’s struggles aren’t just about weak sales—its much-anticipated self-driving update in China has apparently fallen flat with local customers. The company has been waiting for government approval to roll out more advanced automation features, aiming to bring its Chinese driver-assistance software closer to the U.S. version of Full Self-Driving (FSD). However, regulatory delays pushed the expected launch from late 2024 into 2025, leaving Tesla owners waiting for months.Over the weekend, rumors had it that a major FSD update was finally coming but the actual software upgrade, released Monday, left many disappointed. While it introduced in-city navigation, it still requires full driver attention, keeping Tesla’s system at Level 2 automation. Now, that’s a concern for Tesla, as Chinese rivals are offering similar or better automation features at lower costs.BYD, for instance, recently introduced its “God’s Eye” driver-assistance system at no extra charge, while Xiaomi’s new SU7 includes its self-driving tech as a standard feature. In contrast, Tesla continues to charge a premium for its automation tools, making it harder to justify the price tag when competitors are closing the gap.Musk’s Plate is Overflowing—TSLA Investors Aren’t Loving ItMusk is stretched thin, juggling leadership at Tesla, SpaceX, and several other ventures. Now, as the head of President Trump’s Department of Government Efficiency (DOGE), he’s spending much of his time in Washington, D.C. Musk has gained access to government systems, including taxpayer data, and is pushing a sweeping cost-cutting agenda. He recently demanded federal employees justify their jobs or face termination—a move backed by Trump, despite officials saying compliance was voluntary. Yesterday, Musk gave workers another chance to respond, highlighting his growing influence over government operations.Musk’s growing involvement in politics is adding to investor anxiety. Some fear that his role in overseeing a sweeping downsizing of the federal government is distracting him from Tesla at a critical time. And that is damaging Tesla’s brand appeal among certain consumers. As Tesla faces mounting competitive pressure and slowing sales, investors think the company needs Musk’s full focus more than ever.Tesla Price Performance & ValuationDown 25% on a year-to-date basis, Tesla has underperformed its Mag 7 peers as well. The S&P 500 index has risen 1.5% in the same timeframe.YTD Price Performance ComparisonImage Source: Zacks Investment ResearchTesla has lost its grip on its 50-day moving average.Image Source: Zacks Investment ResearchTSLA is trading at a forward 12-month P/E of 112X — almost four times the group’s average forward P/E. With slowing EV growth and execution risks, Tesla’s valuation is way too expensive. Tesla has a Value Score of F. Stretched ValuationImage Source: Zacks Investment ResearchIt’s a High-Stake Year for TeslaCurrently, Tesla is at a crossroads, and this year will be pivotal for its future. With EV sales slipping and affordability becoming a bigger concern, Tesla needs to deliver on its promise of lower-cost models. The company aims to launch an affordable EV in the first half of 2025 and expand its lineup from there. If successful, this could help Tesla regain market share, especially in price-sensitive regions.Meanwhile, Musk is betting heavily on FSD and robotaxis, calling them Tesla’s most valuable future segment. The company plans to launch unsupervised FSD as a paid service in Austin this June, with hopes of expanding to California and other U.S. markets by year-end—if regulators give the green light. With Musk now leading DOGE, regulatory simplification could make AV deployment easier for Tesla.What Should Investors Do Now?Tesla is currently down 37% from its all-time high on Dec. 17, and if you’re thinking about buying the dip—think again. The company is facing multiple challenges and needs to prove it can hit its 2025 targets. Earnings estimates have also been revised downward over the past month.Image Source: Zacks Investment ResearchFor potential investors, it’s wise to keep a close eye on Tesla’s progress in autonomous vehicles, as FSD approvals and robotaxi developments will be critical to long-term growth. As for existing shareholders, waiting for a better exit point may be a smart move. While near-term risks persist, Tesla’s long-term potential still holds promise.TSLA currently carries a Zacks Rank #3 (Hold) currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks hereZacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is among the most innovative financial firms. With a fast-growing customer base (already 50+ million) and a diverse set of cutting edge solutions, this stock is poised for big gains. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Tesla, Inc. (TSLA): Free Stock Analysis Report Byd Co., Ltd. (BYDDY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks