Tesla's Declining Deliveries Amid Rising Competition and Political Headwinds

Tesla's Q2 2025 delivery report paints a troubling picture of a once-dominant EV leader now grappling with weakening demand, inventory overhang, and intensifying competition. Compounded by CEO Elon Musk's political liabilities and strategic missteps, the company's valuation risks are mounting. With a price-to-sales (P/S) ratio of 9.64—far above peers like BYD (P/S ~3) and General Motors (P/S ~1)—Tesla's stock appears overvalued relative to its deteriorating fundamentals. This article argues that investors should exercise caution until execution improves and market share stabilizes.

Delivery Decline and Inventory Buildup: A Structural Problem?

Tesla's Q2 deliveries fell to 384,122 units, a 13% year-over-year drop, despite production remaining flat at 410,244 units. This has led to an inventory days of supply metric rising to 25.26 days, up from 23 days in Q1.

The mismatch between production and sales signals a demand shortfall, exacerbated by competition and reputational damage.

While Tesla's Cybertruck and Model S/X saw deliveries plunge 52% year-over-year, BYD's BEV sales soared 42.5%, reaching 607,000 units in Q2—223,000 more than Tesla. BYD's aggressive pricing, backed by government support, is undermining Tesla's premium positioning. In China, Tesla's sales fell 6.8% year-over-year, while BYD's NEV sales rose 14.7%.

Valuation Disconnect: Overpaying for Underperformance

Tesla's forward P/S ratio of 9.64 is an outlier compared to peers:
- BYD: ~3.0
- General Motors: ~1.0
- Rivian: ~2.5

This premium is hard to justify given Tesla's declining sales (13% drop in H1 deliveries) and margin pressures. Analysts question whether the valuation reflects Tesla's current challenges or overly optimistic assumptions about future autonomy-driven growth.

The risks are clear: a 27% YTD stock decline (to below $325) and potential $1.2 billion annual revenue hit from expiring U.S. tax credits by 2026. Without policy extensions, Tesla's affordability will erode further, pushing buyers toward BYD's cheaper models.

Political Liabilities: Musk's Controversies and Brand Damage

Musk's alignment with Donald Trump's administration—and his role in the controversial Department of Government Efficiency (DOGE)—has triggered regulatory scrutiny and consumer backlash. In Europe, where Tesla sales fell 42% year-over-year, movements like “Tesla Takedown” reflect a public turn against the brand's association with Musk's polarizing politics.

Analysts warn that Musk's feud with former allies and his focus on political ventures (e.g., running for president in 2024) divert attention from Tesla's core challenges: delayed launches of its $20,000 affordable model, Cybertruck manufacturing defects, and execution gaps in autonomous driving.

Strategic Risks: Bets on Autonomy and Robotics

Tesla's pivot to autonomous taxis and robotics aims to unlock a $2 trillion market cap, but these ambitions face steep hurdles. The company's full-self-driving (FSD) software lags competitors like Waymo, while its robotaxi service in Austin faces regulatory and safety scrutiny. Meanwhile, Musk's $20 billion investment in AI risks diverting resources from core EV operations.

The financial strain is visible: Q1 2025 profits fell 71%, with margins projected to drop to 11.5% in 2025. Competitors like Ford and BYD, by contrast, are expanding EV production profitably.

Investment Advice: Proceed with Caution

Tesla's shares remain vulnerable to valuation compression as fundamentals deteriorate. Key risks include:
1. Competitive erosion: BYD's price advantage and global expansion.
2. Regulatory overhang: U.S. tax credit expiration and Musk's legal battles.
3. Execution delays: The $20,000 model and FSD software.

Recommendation: Avoid Tesla until:
- Delivery cadence stabilizes (e.g., inventory days of supply return to 20 days).
- Margins improve and tax credit risks are resolved.
- Musk's political distractions wane.

For now, investors should consider diversifying into broader EV plays like BYD, NIO, or Ford, which offer better risk-adjusted returns.

Conclusion

Tesla's Q2 2025 results underscore a company in transition—from growth leader to a firm battling structural headwinds. Overvaluation, political liabilities, and strategic missteps cloud its path. Until execution improves and market share stabilizes, Tesla's stock remains a high-risk bet for all but the most patient investors.

This analysis suggests investors should tread carefully and await clearer signs of recovery before reengaging.