Nearly half of Americans have a negative view of Tesla's brand.
Tariffs and economic uncertainty are significant headwinds for the automaker this year.
There are still a lot of unknowns for Tesla next year, too.
A lot of investor attention has been directed toward Tesla(NASDAQ: TSLA) and the company's recent disappointing first-quarter results. Even before the company reported those results, longtime Tesla bull Gene Munster of Deepwater Asset Management said that "2025 is a throwaway year" for the EV maker.
Here's why that assessment is likely correct and if Tesla is taking the right steps to get back on track for 2026.
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Image source: Tesla.
Why 2025 is likely a throwaway year
We're just four months into the year, so it seems a little early to be saying that this year won't amount to much for Tesla. However, the writing is on the wall. In case you missed it, here are the uninspiring details from Tesla's first quarter:
Automotive sales declined 20% from the year-ago quarter to about $14 billion.
Net income dropped 71% to $409 million.
Total revenue was down 9% to $19.3 billion.
Adjusted earnings per share (EPS) of $0.27, far below Wall Street's consensus estimate of $0.39.
Tesla said part of the sales decline came from making changes to four of its plants to get ready for production of an updated version of the Model Y, which caused several weeks of lost production. The company also mentioned lower vehicle average selling prices (ASPs) and fewer vehicle incentives as factors.
Tesla's management also noted in the results that trade difficulties caused by tariffs are causing instability as well.
The company noted in its quarterly earnings presenation, and I quote, "It is difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chains, our cost structure, and demand for durable goods and related services."
That's an understatement, considering the entire automotive market is reeling right now as it tries to figure out how to adjust to President Trump's tariffs. The reality is that Tesla had a very poor beginning to the year, and the auto industry as a whole could have a bad rest of the year (and longer) if some tariffs stay in place.
For example, tariffs impacting EV batteries alone could increase costs by an estimated $8 billion for electric car companies and battery producers. If Trump follows through on his recent comments about enacting semiconductor tariffs, EV prices would likely feel the pain as well.
If all of that weren't bad enough, many economists have increased their predictions of a recession occurring in the next 12 months. A recent Wall Street Journal survey found that some economists have raised their probability up to 45%, up from about 20% at the beginning of the year.
Any economic slowdown would, of course, put additional pressure on Tesla's ability to improve vehicle sales this year.
Will 2026 be better?
While the remainder of 2025 is likely to be rough for Tesla, there are a couple of things that could potentially help the company in 2026, though I remain a bit skeptical.
The first one is Musk stepping away from heading up the Department of Government Efficiency (DOGE) and returning his focus to running Tesla. Musk said on the first-quarter earnings call, "... I think starting probably next month, May, my time allocation to DOGE will drop significantly." He added that he'll continue to spend one or two days per week at DOGE.
While some investors were happy with Musk's comments, I think the negative impact on Tesla's brand from Musk's work at DOGE may continue even as he focuses more attention on Tesla. For example, a recent survey found that 47% of Americans have a negative view of Tesla, and just 27% of them view the company positively. Contrast that with General Motors, in which just 10% of Americans view it negatively.
Brand reputations can be rebuilt, of course, but if Musk stays on at DOGE in some capacity throughout Trump's term, which is what Musk says he'll do, then I think Tesla's brand will continue to be negatively impacted.
Another thing that could potentially boost Tesla's prospects next year is if the company finally introduces a long-awaited cheaper vehicle. That's increasingly looking like a version of its Model Y -- without the bells and whistles -- that could potentially cost under $30,000. Tesla said on the earnings call that production of the cheaper model should begin in June.
The average transaction price for a new EV in the U.S. is about $52,200 right now, so launching a significantly lower-priced EV next year might help Tesla attract buyers with smaller budgets.
But despite these opportunities, I think Tesla has its work cut out for it. President Trump's tariffs are causing significant uncertainty in the automotive market right now, Tesla's brand is suffering because of Musk, and many Americans are concerned about a potential recession.
These are all significant headwinds for Tesla, and investors are going to have to wait longer to see how they all play out to know how the company weathers them. With so much uncertainty with Tesla's brand, the broader automotive market, and the economy, 2026 may be too soon to hope for a Tesla turnaround.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends General Motors. The Motley Fool has a disclosure policy.
