Tesla (TSLA) stock has experienced a significant decline, dropping 44% in 2025, contrasting sharply with the S&P 500 and Nasdaq Composite, which fell by 4% and 9%, respectively. While the stock is down 51% from its all-time highs, it remains up 37% over the past year.
Tesla’s worst year since 2016
The surge in Tesla’s stock occurred around the time of the presidential election in 2024, following Donald Trump’s victory. After reaching all-time highs, the current decline prompts speculation regarding its future direction. Aswath Damodaran, a finance professor at New York University known as the “Dean of Valuation,” has identified three main factors contributing to the current sell-off.
First, Damodaran highlights declining demand in the electric vehicle (EV) market, indicating that Tesla may be facing challenges in maintaining its customer base. Second, he points to competition from the Chinese EV manufacturer BYD, which he believes will be more effective in capturing the mass market. In contrast, Tesla is positioned more toward premium buyers.
Third, Damodaran raises concerns about CEO Elon Musk’s involvement in politics, specifically his role leading the Department of Government Efficiency (DOGE), which may lead some investors to worry about a shift in focus away from Tesla’s business objectives. Overall, Damodaran predicts Tesla’s stock could decline to around $148, indicating a potential 38% drop from current levels.
Tesla’s revenue from its EV business declined by 6% year over year in 2024, accompanied by a drop in production and delivery numbers. This situation underscores potential pressures from competitors and consumer hesitancy to pay high prices for its vehicles. Analysts note that BYD’s strong popularity in both China and Europe presents significant challenges for Tesla.
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Moreover, Tesla management has discussed the launch of a lower-priced EV, although there have been delays in timelines associated with new model releases. Damodaran also considers the impact of artificial intelligence (AI) on Tesla’s future profitability, citing autonomous driving software and robotaxis as potential growth areas. His model forecasts total free cash flow of $188 billion for Tesla over the next decade. In contrast, Morgan Stanley analysts predict annual profits of $120 billion from robotaxis by 2040, with some projecting profits as high as $375 billion.
On March 18, 2025, Tesla’s stock faced additional pressure, closing down more than 5% as competition announced new developments. The stock has now declined over 53% since peak levels in December 2024. Key competitors such as BYD announced new EV models and expanding charging infrastructure in China, while Xiaomi is ramping up production of its SU7 sedan, which has already attracted significant consumer interest.
XPeng projected revenue growth, expecting to deliver up to 93,000 vehicles in the first quarter of 2025, reflecting an over 300% increase from the previous year. Additionally, Zeekr, another competitor, plans to roll out its autonomous software at no cost to customers in China.
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Featured image credit: Michael Förtsch/Unsplash
