Tesla (TSLA 1.53%) stock peaked at $480 per share in December. At the time, Donald Trump had just won the presidential election with tremendous financial support from CEO Elon Musk, and investors were confident the company would benefit from their relationship. But the opposite has happened.
Tesla stock has plummeted 50% from its record high and market share losses have accelerated as Musk's involvement in politics has created a "brand crisis" for the company, according to equity analyst Dan Ives at Wedbush Securities.
Importantly, Ives has consistently been one the biggest Tesla bulls on Wall Street. However, he now says the company has reached a crossroads that could fundamentally change the investment thesis if Musk fails to disengage from politics in the immediate future. Here's what investors should know.
NASDAQ: TSLA
Key Data Points
Dan Ives says Elon Musk's politics could permanently damage the Tesla brand
Dan Ives at Wedbush Securities has consistently had positive things to say about Tesla. He described Musk's decision to support Trump in the presidential election as a "bet for the ages," assuming their ties would benefit Tesla by eliminating regulatory red tape with autonomous driving technology and simplify deployment of robotaxis.
Moreover, Ives told CNBC that Tesla was the "most undervalued AI name in the market" after the November election. He argued the stock could hit $600 per share as the company leaned into artificial intelligence products and services, like autonomous ride-sharing and autonomous humanoid robots. However, Musk's decision to back Trump has so far backfired.
While Tesla manufactures vehicles in the U.S., the company also relies on imported parts now subject to a 25% tariff imposed by the Trump administration. Also, Musk has become a polarizing political figure because of his involvement with the Department of Government Efficiency, which has undoubtedly alienated potential customers in every major market.
Indeed, Tesla has seen sales decline around the world amid the political backlash. Total first-quarter deliveries plummeted 13% to its lowest level in three years despite 29% sales growth in the broader electric car market. Meanwhile, Tesla's market share declined 9 percentage points in the U.S., 9 percentage points in Europe, and 4 percentage points in China.
Ives sees that as a self-inflicted crisis caused by Musk's politics, and warns that Tesla risks "permanent brand destruction" that would change the investment thesis if Musk fails to immediately refocus on the company. Ives recently cut his target price to $315 per share to reflect a more pessimistic outlook, though he still has a buy rating on the stock.
Image source: Getty Images.
Wall Street has cut earnings estimates, but Tesla has big opportunities in robotaxis and robotics
Several analysts have downwardly revised their future earnings estimates since January, which has lowered the consensus numbers for 2025 and 2026 by 22% and 16%, respectively. Wall Street now expects Tesla's earnings to increase at 18% annually through 2026. That makes the current valuation of 100 times earnings look very expensive.
Admittedly, Tesla is at an inflection point with the planned launch of robotaxi services in June, followed by the possible commercialization of Optimus humanoid robots next year. Both of those markets are estimated to be multitrillion-dollar opportunities for the company. So, earnings could grow more quickly than anticipated if the company meets its deadlines.
Beyond 2026, earnings growth may accelerate as its autonomous ride-sharing and robotics businesses scale. And Musk on the fourth-quarter earnings call said Tesla could eventually be the most valuable company in the world, perhaps worth more than the next five companies combined. "That is overwhelming due to autonomous vehicles and autonomous humanoid robots," he said.
Of course, there is a great deal of execution risk baked into that statement, especially when the company has consistently deviated from its estimated timelines in the past. Investors uncomfortable with that risk should avoid the stock. But patient investors that think Musk can right the ship should consider buying a few shares today.
