Tesla’s stock climbed more than 5% today, after CEO Elon Musk announced he would scale back his advisory role with U.S. President Donald Trump to refocus on the electric vehicle (EV) giant. However, a 71% drop in Q1 net income and ongoing brand perception issues tied to Musk’s political affiliations signal a challenging road ahead for the world’s most valuable automaker.

Musk’s Pivot and Market Response

Musk’s commitment to reduce his political involvement to one or two days per week starting next month sparked optimism among investors. Tesla’s shares, which have lost over half their value since a December peak, could add more than $50 billion to its $766 billion market capitalization if gains hold.

“His time is very valuable, and I think Tesla needs his attention,” said Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, according to Reuters. Yet, Gerber cautioned, “It doesn’t change that people don’t want the Tesla brand. I don’t know how you fix that.”

The market’s reaction reflects relief but not resolution. Tesla’s forward price-to-earnings ratio, at 89 times profit expectations, dwarfs competitors like Ford and General Motors, underscoring high investor expectations despite recent struggles.

Brand Challenges and Political Backlash

Musk’s alignment with right-wing politics, including his support for Trump, has alienated segments of Tesla’s customer base, particularly those drawn to its climate-focused mission. Protests and vandalism at Tesla showrooms have intensified, with Reuters reporting significant public backlash.

“Musk could do a reversal on his political career and dedicate 100% of his time to Tesla, but the rot has set in,” said Sue Benson, CEO of The Behaviours Agency reportedly. “No product can fix this.”

Tesla’s finance chief, Vaibhav Taneja, acknowledged the toll: “Negative impact of vandalism and unwarranted hostility toward our brand and our people had an impact in certain markets.” Analysts suggest that while EV adoption in conservative U.S. states could offset losses in liberal strongholds like California, the brand’s polarized image remains a liability.

Strategic Moves and Regulatory Hurdles

Tesla reaffirmed plans to launch an affordable EV model in early 2025, targeting broader consumer appeal. However, the company warned of a slower production ramp due to shifting global trade policies. Tesla’s energy storage business, reliant on Chinese battery cells, faces risks from potential tariffs.

Musk, who has advocated for lower tariffs, noted, “I expect this year there will probably be some unexpected bumps.”

A full-year delivery forecast review is slated for the Q2 earnings update in July. Unlike legacy automakers, Tesla is less exposed to global tariffs but not immune. “Changing political sentiment could have a meaningful impact on demand for our products in the near-term,” the company stated, highlighting the interplay of politics and market dynamics.

EVXL’s Take

Tesla’s challenges extend beyond operational hurdles to a fundamental brand identity crisis. Musk’s political stance has fractured Tesla’s once-unified appeal, risking long-term loyalty in key markets. While the affordable model could drive volume, its success hinges on restoring consumer trust—a task no production line can automate. Tesla must navigate this with strategic pricing and messaging that reconnects with its diverse buyer base, or risk ceding ground to competitors unburdened by such baggage.

As Gabor Schreier of Saffron Brand Consultants noted, “Until the brand distances itself from the political baggage it has acquired, Musk’s specific percentage of renewed focus on Tesla may be irrelevant.”

Photo courtesy of Tesla