Tesla shares fell 4.14% in pre-market trading as historic sales downturn and valuation concerns weigh

Tesla shares fell 4.14% in pre-market trading on January 7, 2026, as investors reacted to a historic sales downturn and valuation concerns.

The automaker reported its steepest annual vehicle sales decline, delivering 1.63 million EVs in 2025—a drop of 8.5% from 2024. Intensifying competition, particularly from cost-competitive rivals like BYD in Europe and China, eroded Tesla’s market share. In Europe, Tesla’s EV share fell to 1.7% from 2.4%, as models like BYD’s Dolphin Surf undercut Tesla’s pricing.

While CEO Elon Musk highlighted long-term growth prospects for Cybercab and Optimus, both projects remain years from mass production. The delay raises short-term risks for Tesla’s revenue, with EV sales—the core of 75% of its revenue—facing continued pressure. Analysts warn the stock’s lofty valuation, driven by speculative bets on future tech, could amplify losses if near-term results underperform.

Investors remain divided on whether the current stock price reflects optimism or overconfidence. The earnings report, released just a week before the market drop, showed a 6% increase in quarterly revenue compared to the prior year, but analysts noted a sharp decline in gross margins. The company also announced plans to increase manufacturing output by 20% in 2026, though production bottlenecks in battery supply continue to pose a challenge.

Despite these challenges, Tesla's long-term vision continues to attract investors willing to overlook short-term volatility for the promise of technological leadership and market dominance in the EV sector.