Tesla (NASDAQ: TSLA) shareholders woke up to a jarring headline this week: the stock shed more than 8% in a single session, wiping out over $60 billion in market capitalization, after CEO Elon Musk hinted at forming an “America Party” and running for U.S. President in 2028. Already under pressure from declining EV sales, intensifying competition, and dwindling regulatory credits, the political turn by the CEO has further shaken investor confidence.
At its core, Tesla remains the world’s most valuable electric vehicle manufacturer and an iconic disruptor of the auto industry. But a confluence of fundamental and perception-driven headwinds is raising the question: Should investors exit or hold Tesla at this juncture? And what does Musk’s political pivot mean for the broader market?
This article takes a deep dive into the drivers of the recent selloff, the risks and opportunities Tesla faces, and how Musk’s political ambitions could reshape sentiment toward the stock — and markets more broadly.
Tesla’s Earnings Pressure: The Loss of EV and Regulatory Credit Tailwinds
Tesla has long been viewed as the torchbearer of the EV revolution. But in 2025, the company’s top- and bottom-line trends have turned decidedly more challenging.
The latest quarterly earnings showed a significant decline in EV deliveries, down 7% year-over-year to just over 430,000 units — missing even the most conservative Wall Street estimates. While competition from Chinese players such as BYD and domestic rivals like Ford and GM has intensified, Tesla’s own price cuts have eroded its margins without sparking enough incremental demand.
More worrying is the diminishing impact of regulatory credits, which have historically bolstered Tesla’s profitability. In the latest quarter, regulatory credit revenue fell by over 40% to $230 million — down from a peak of over $700 million per quarter just two years ago. As more automakers bring EVs to market and comply with emissions targets themselves, Tesla’s ability to sell credits is drying up.
Gross margins have dropped to 15%, compared to over 25% during peak years, as the company engages in a pricing war to protect market share. Meanwhile, free cash flow turned slightly negative for the first time in five years.
Tesla bulls have long argued that software, autonomous driving, and energy storage businesses would offset EV margin compression. But so far, these segments remain nascent and have not meaningfully contributed to the bottom line.
Tesla Bulls Show Signs of ‘Exhaustion’
Even Tesla’s staunchest long-term bulls are beginning to express fatigue. Cathie Wood of ARK Invest, who has championed Tesla for over a decade, described recent developments as evidence of “investor exhaustion.”
The stock, which once traded above $400 (split-adjusted) at its peak in 2021, is now hovering around $175 — still commanding a market cap north of $550 billion, but far from its highs. At ~55x forward earnings, Tesla remains one of the most richly valued automakers in history despite declining growth rates.
Wall Street sentiment has also cooled markedly. Of the 40 analysts covering Tesla, just 14 now rate it a Buy, down from 27 a year ago. The consensus price target has fallen to ~$200, with a growing cohort of analysts warning about structural margin compression and growing execution risk as the EV market matures.
Retail investor enthusiasm — once Tesla’s most reliable tailwind — has ebbed. Flows into ETFs and funds heavily weighted toward Tesla have slowed significantly in 2025, according to EPFR Global data, while social media sentiment has turned more mixed amid growing doubts about Musk’s priorities.
Elon Musk’s ‘America Party’ Bid Roils Markets
Musk’s announcement that he is “seriously considering” a presidential run in 2028 under a new “America Party” banner sent shockwaves through both Tesla and the broader market. Investors and analysts alike are questioning whether the CEO’s political ambitions will further distract him from running Tesla, where his presence has always been central to the company’s strategy and narrative.
Investor Concerns About CEO Focus
Historically, Musk’s ability to wear multiple hats — across Tesla, SpaceX, Neuralink, and Twitter (now X) — has raised eyebrows but never seriously dented investor confidence. But the cumulative effect of political campaigning could meaningfully reduce his attention at a time when Tesla needs to execute flawlessly amid intensifying competition.
A Morgan Stanley note to clients this week cautioned:
“While we believe Tesla remains a technology leader, the CEO’s recent comments suggest he may be further distracted from operational execution, introducing incremental risk to shareholders.”
The note downgraded Tesla from Overweight to Equal-Weight, citing “leadership distraction risk” as a key factor.
Broader Market Implications
Beyond Tesla, Musk’s political announcement has unsettled markets more broadly. The S&P 500 slipped 1.2% on the day of his comments, as investors digested the potential for heightened political uncertainty in the years ahead. Given Musk’s outsized influence on market sentiment and his polarizing public persona, his entry into politics risks injecting more volatility into an already uncertain macro backdrop.
For institutional investors who prize stability and predictability, Musk’s increasing unpredictability could make Tesla — and to some extent, the broader EV and tech complex — a more difficult proposition to hold at high weightings.
Should Investors Exit or Hold?
The decision to exit or hold Tesla at this stage depends largely on one’s investment horizon and risk appetite.
The Bear Case: Reasons to Consider Exiting
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Declining fundamentals: Falling deliveries, shrinking margins, and weakening regulatory credit revenue paint a picture of a company under pressure.
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Valuation risk: At ~55x forward earnings, Tesla remains expensive relative to peers and its own slower growth.
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CEO distraction: Musk’s political aspirations and multiple business commitments add operational risk.
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Competitive headwinds: Chinese EV makers continue to gain share, while legacy automakers ramp up EV production.
The Bull Case: Reasons to Hold
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Long-term vision: Tesla still leads in battery technology, autonomous driving development, and global brand strength.
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Optionality: Energy storage, full self-driving software, and robotaxi potential could unlock new revenue streams.
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Loyal customer base: Tesla continues to enjoy strong brand loyalty and a unique ecosystem of users and investors.
For long-term investors who believe in Musk’s vision and Tesla’s technological edge, holding may still make sense — but with the understanding that volatility and further drawdowns are likely in the near term.
Conclusion: Navigating a More Uncertain Tesla
Tesla’s 8% plunge this week underscores the challenges of owning a high-growth, high-volatility stock at a time when fundamentals and CEO behavior are raising fresh questions.
The loss of EV and regulatory credit tailwinds, signs of investor exhaustion even among long-time bulls, and Musk’s increasingly divided focus — now potentially including a presidential campaign — all weigh on the investment case for Tesla.
For investors who prize stability and clear execution, trimming or exiting positions may be prudent at current levels. For those with a long-term horizon and tolerance for risk, Tesla still offers optionality in emerging technologies and markets that few companies can match.
Either way, the days of Tesla being seen as a one-way bet appear to be over. Investors should size positions appropriately and remain vigilant as the story unfolds.
Takeaways:
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Tesla’s fundamentals are under pressure, with declining deliveries, margin compression, and shrinking regulatory credit revenue.
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Investor fatigue is showing, with sentiment among even longtime bulls cooling noticeably.
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Musk’s presidential ambitions have raised fresh concerns about CEO focus and added another layer of volatility.
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Tesla remains a unique long-term story, but at ~55x earnings, it leaves little room for execution missteps.
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Investors should reassess their risk tolerance and investment horizon before deciding whether to hold or exit.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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