Despite an abysmal quarter on nearly every metric, shares of Tesla(NASDAQ: TSLA) climbed even after the electric vehicle (EV) maker pulled its guidance for the year. The stock is still down more than 35% in 2025 as of this writing, but over the past year, it has risen by around 80% despite a string of poor quarterly earnings results.
The stock's rise can be attributed to CEO Elon Musk pledging to spend more time running the company instead of overseeing the Department of Government Efficiency (DOGE). Musk also continued to hype Tesla's robotaxi and artificial intelligence (AI) ambitions.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
The stock rallied on the news, but let's examine why it may have much more downside from here.
Its core auto business is cratering
Musk's political ambitions and time at DOGE significantly damaged the Tesla brand. He alienated a large percentage of the population, and those who were more likely to buy EVs. It's great that Musk is looking to refocus on Tesla, but the damage to the brand seems to be already done.
Tesla's first-quarter figures showed declines in both auto deliveries and revenue. Quarterly deliveries dropped 13% to 336,681, while auto revenue plunged 20% to $14 billion. Model 3 and Model Y deliveries fell 13%, while other models decreased by 24%. The latter shows that Tesla's distinct-looking Cybertruck is having trouble selling.
This does not appear to be a one-quarter blip. Management pulled its full-year guidance, saying it was "difficult to measure the impacts of shifting global trade policy on the automotive and energy supply chain." Chief financial officer Vaibhav Taneja acknowledged the "near term" challenges the company has with its brand image on its earnings conference call.
However, Musk tried to shift the poor sales to being a macro issue, saying that beside that, it saw "no reduction in demand." However, that does not coincide with reality. For example, while Tesla saw a nearly 9% decline in U.S. deliveries in the quarter, according to Cox Automotive, overall U.S. EV deliveries jumped by more than 10%. Meanwhile, overall global EV sales soared 29% in the first quarter, according to market intelligence company Rho Motion, with European EV sales up 22% and Chinese EV sales up 36%.
This means that Tesla is seeing its auto sales decline despite what is still a pretty robust market for EVs.
Image source: Getty Images
More lofty promises
With its core auto business struggling, Musk once again turned to lofty promises about autonomous driving, robotaxis, and AI.
He said that it will begin offering paid robotaxi rides in Austin, Texas, beginning in June, starting with 10 to 20 vehicles. It will then ramp up its fleet and look to rapidly expand to other cities by the end of the year. He added that the robotaxi business would have a notable impact by mid-2026.
Tesla sticking to its June timeline, though, raises a lot of questions. The company thus far has only achieved Level 2 automation, which means that the automobile can steer and control speed, but a driver must stay engaged at all times. A robotaxi would require Level 4 automation, where the automobile can drive itself in a specific area. The leap from Level 2 automation to Level 4 is not a small step and skips Level 3 automation, in which the car can perform most driving tasks, but the driver must take over in some conditions.
Once again, it provided few details on how it was going to achieve Level 4 automation. The company's decision to eschew lidar (which uses lasers to measure distances and movement) and use a vision-only approach for autonomous driving has thus left it far behind, and even recent tests of its technology have found a lot of issues. Musk has a long history of overpromising and underdelivering when it comes to autonomous driving, but a June timeline is so close that you would have to think it could happen.
That said, even if Tesla does launch a robotaxi service, it doesn't necessarily solve the company's issues. Alphabet's Waymo has already taken the lead in the space in the U.S., and Tesla's problems with its brand reputation would extend to robotaxis as well. Meanwhile, most robotaxi fleets would operate in big cities, which tend to lean liberal.
Rohan Patel, the company's former head of business development and policy, told The Information, a technology-focused business website, that based on Tesla's internal analysis, the payback for its robotaxi ambitions was going to be slow.
An expensive stock
The stock has always gotten a huge premium valuation based on the hopes and dreams that Musk sells to investors, more than economic reality. That is the case now, more than ever.
The reality is that the company is currently seeing its market share and revenue decline. It trades at a forward price-to-earnings ratio (P/E) of over 100 based on 2025 analyst estimates, while its profitable U.S. auto peers all have multiples below 10. And while investors are placing a huge value on the potential robotaxi business, Alphabet, which has an operational paid robotaxi businesses, gets no such premium.
Between Tesla's valuation and the brand damage that has been done, I think the stock could have a lot further to fall in the future.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $276,000!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $39,505!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $591,533!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you joinStock Advisor, and there may not be another chance like this anytime soon.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Tesla. The Motley Fool has a disclosure policy.
