Tesla's Political Distraction and Falling Sales: A Recipe for Investor Risk

Tesla's stock has long been a barometer of innovation and ambition, but recent developments suggest its trajectory may be veering into dangerous territory. With Elon Musk's high-profile foray into politics clashing with his company's deteriorating sales and margins, the risks for investors are mounting. Let's dissect why Tesla's current challenges—fueled by both internal missteps and external pressures—might make this a time to think twice before holding the stock.

Errol Musk's Stinging Critique: A Father's Warning

Elon Musk's father, Errol, has publicly dismissed his son's political aspirations as misguided, calling him “not a good politician at all.” This isn't just family drama—it's a signal of deeper concerns. Errol, a psychologist and former Tesla board member, argues that Elon's blunt communication style and “alpha male” clashes (like his feud with Donald Trump over Epstein-related claims) are ill-suited for the diplomatic demands of politics.

The Trump dispute, in particular, backfired spectacularly. When Elon accused Trump of being implicated in Epstein's files without evidence, it triggered retaliatory threats to cut Tesla's government contracts. Errol's advice to “make sure this fizzles out” underscores a paternal belief that Elon's political forays—like his role in the now-defunct Department of Government Efficiency—are a distraction from Tesla's core challenges.

This family rift isn't just personal. It reflects a broader skepticism about Elon's ability to navigate the delicate balance between business and politics. As Errol put it, politics is like a “human swimming pool” where even Churchill eventually struggled—a metaphor that now seems prescient.

Tesla's Sales Slump: A Demand Crisis

While Musk battles in the political arena, Tesla's sales are plummeting. Q1 2025 deliveries fell 13.4% year-over-year to 384,122 units. In Europe, sales dropped 45% in January and 76% in Germany by February. Even in China, Tesla's February sales collapsed 49% YoY—the lowest since 2022. Competitors like BYD are lapping up market share, with BEV sales up 161% in February.

The problem isn't supply constraints but demand. Tesla's inventory has swollen by 50,000–60,000 units, signaling overproduction. To combat this, Tesla has resorted to discounts and promotions, including an 8,000 yuan insurance subsidy in China. But these measures are cutting into already thin margins. Automotive gross margins hit a record low of 13.59% in Q4 2024, with average selling prices (ASPs) falling 5.2% sequentially.

Analysts Sound the Alarm: A 60% Drop on the Table

The writing is on the wall for investors. Wells Fargo analysts now warn of a potential 60% stock drop, slashing their price target to $120—a 61% decline from June's closing price of $317.66. This isn't just fearmongering. Key factors include:
- Margin Erosion: Tesla's adjusted EPS has dropped to $2.42 in 2024 from $4.07 in 2022. Analysts project further declines unless costs are slashed.
- Competitive Pressure: BYD, GM, and others are eating into Tesla's dominance. Its U.S. EV market share is slipping, and in California—once its stronghold—Tesla's share has fallen below 50%.
- Political Overreach: Musk's feud with Trump has created volatility, with shares dropping 7% in early June as tensions flared. Regulatory risks, like cuts to EV tax credits, loom large.

Even Tesla's ambitious projects—robotaxis and the Optimus robot—remain years from commercialization. They're no panacea for 2025's margin pressures.

The Case for Caution: Why Investors Should Proceed with Caution

The core issue isn't just Tesla's falling sales or margins—it's Musk's distraction. While he's focused on political battles and grand visions, Tesla's operational execution is faltering. Errol's critique highlights a critical truth: Elon's strengths lie in engineering and vision, not in managing the intricacies of politics or corporate governance.

Investors are paying the price. The stock's 22% year-to-date decline reflects this. With analysts projecting deliveries of just 1.95–2.08 million in 2025 (down from earlier targets), the path to growth is narrowing.

Investment Takeaway: Exit or Avoid Until the Focus Shifts

Tesla's stock is a high-risk bet today. The combination of weakening sales, margin contraction, and Musk's political diversion creates a toxic cocktail. Unless Elon pivots back to Tesla's fundamentals—cost discipline, new product launches, and demand revival—the stock could test the Wells Fargo $120 target.

For now, investors would be wise to:
1. Avoid New Positions: The downside risks outweigh the upside potential.
2. Consider Lightening Exposure: If holding Tesla, use rallies to trim stakes.
3. Wait for Clarity: Look for signs Musk is refocusing on Tesla's core business, not politics.

In the words of Errol Musk: “Politics is a human swimming pool.” Until Elon stays out of the deep end, investors should tread water.

Data as of June 2025. Past performance does not guarantee future results.