For years, Tesla Inc. has cultivated a legion of devoted followers who have weathered market storms and defended the company against its detractors.
However, even the most steadfast believers are now questioning their allegiance as the stock experiences a brutal selloff, making Tesla the worst-performing stock in the S&P 500 Index this year.
From Trump bump to Trump slump
The reversal has been so dramatic that President Donald Trump, known for his affinity for Elon Musk, intervened on Monday night, publicly stating that he would buy a new Tesla in a show of support.
On Tuesday, Trump chose a red Model S from the Teslas that were delivered to him at the White House.
While Tesla shares initially rose 2.3% in premarket trading on Wednesday, fueled by Trump’s endorsement and the perceived opportunity to “buy the dip,” the underlying sentiment remained deeply pessimistic.
Even Musk’s most loyal fans are hesitant to jump back in, fearing that the stock’s downward spiral is far from over.
Tesla’s stock is now down a staggering 52% from its all-time high reached in mid-December, effectively erasing all of the gains accumulated in the wake of the election, when traders speculated that the company would benefit from Musk’s close ties to the new administration.
On the sidelines, analysts see more downside
“This stock is trading on feelings right now and the downside pressure is winning; there is more room for the stock to fall in the next 30-60 days,” Brian Mulberry, client portfolio manager at Zacks Investment Management Inc., which oversees approximately $21 billion in assets, told Bloomberg.
Mulberry added that the shares “can easily go down to $200 or even below in the short term.”
Despite Zacks holding more than 270,000 Tesla shares as of December 31, Mulberry has decided to remain on the sidelines for now, emphasizing that he could see the stock climbing back above $400 next year, but not in the immediate future.
Mulberry is not alone in his caution.
As the price plunged below $230 this week, down from over $400 less than two months ago, Wall Street analysts—even those with a buy recommendation—have adopted a more guarded stance.
Over the past week alone, at least four analysts have lowered their price targets on Tesla, while two other long-term bullish analysts have warned of poor sales and “negative” sentiment surrounding the company.
Even retail investors show signs of doubt
One of the few remaining sources of support for Tesla has been its loyal base of retail traders, many of whom are ardent fans of Elon Musk.
According to Bloomberg, Emma Wu, a global quantitative and derivatives strategist at JPMorgan Chase & Co., revealed that these small investors have, on net, purchased $2.8 billion of Tesla stock since last Tuesday.
However, even within this devoted group, there are signs that confidence is beginning to crack.
The author of one of the most popular posts on Tuesday on the Reddit forum for Tesla traders confessed: “I keep holding but at this point I’m beginning to doubt my decision.”
The fundamental problem facing investors is that there are few readily apparent catalysts that could significantly improve market sentiment toward Tesla in the near future.
Updates on Tesla’s fully self-driving car or its robotaxi are not expected anytime soon, leaving investors with little to anticipate in terms of groundbreaking technological advancements.
Musk’s increasing involvement with the Department of Government Efficiency has also fueled concerns that he may be too distracted from his responsibilities at the helm of the electric vehicle company.
Furthermore, the current Republican administration’s strong opposition to electric vehicles spells trouble for demand in US.
And Tesla sales are also falling globally, with dire reports coming from China, Europe and Australia.
In many places Musk’s growing involvement with global politics is seen as hurting the company’s brand.
These challenges have prompted several analysts to lower their first-quarter delivery estimates, with UBS’s Joseph Spak issuing a warning on Monday that current profit expectations are looking overly optimistic.
While these concerns have been weighing on Tesla shares since the beginning of this year, the stock really lost its bearing as the broader appetite for risk soured over the past couple weeks amid growing uncertainties about Donald Trump’s trade policies and fears of an economic slowdown.
“Tesla is now a proxy for the Trump trade and unless the market is willing to reward Trump and Musk for their efforts this stock will keep going down,” warned Adam Sarhan, founder of 50 Park Investments.
“There is no floor in this stock right now.”
Tesla’s premium faces scrutiny
The tables have turned rapidly on Tesla.
After Trump was elected, Tesla shares quickly became the largest beneficiaries of that victory in the equity market.
The stock jumped more than 90% in just over a month, despite the fact that the outlook for the company’s business continued to worsen.
Even after the retreat of the Trump wave, Tesla is still trading at a significantly higher multiple than other mega-cap peers.
The shares were trading at 75 times forward earnings as of Monday’s close, compared to an average of 25 times for the so-called Magnificent Seven stocks.
The average S&P 500 member trades at around 20 times earnings.
This rich valuation, coupled with Tesla’s popularity among risk-seeking and momentum-driven traders, makes the stock particularly vulnerable to drastic selloffs.
However, it also suggests that any potential recovery, when it eventually occurs, could be equally swift and dramatic.
For now though, even the most ardent bulls are struggling to find reasons for optimism.
The options markets reflect this growing sense of unease, with most of the activity coming from investors seeking to protect themselves against further losses.
The demand for put options, which provide downside protection, is at its highest level relative to bullish call options since the volatility shock in early August.
One-month implied volatility on Monday reached the highest level since the end of 2022, when shares had slumped to near $100.
“Tesla is in a freefall right now, which makes buying dips difficult for those with short-term time horizons,” Mark Newton, head of technical strategy at Fundstrat, and a long-term bull on the stock, told Bloomberg.
But those who try to be quick in selling here to buy back in a few days are playing a dangerous game.
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