Tesla stock slipped Wednesday even after reports suggested CEO Elon Musk is likely abandoning plans to form a new U.S. political party, a development that might otherwise have eased investor concerns tied to his political involvement. According to The Wall Street Journal, Musk has been “quietly pumping the brakes” on launching the so-called “America Party,” which he floated earlier this summer following clashes with former President Donald Trump over federal spending.

Tesla Shares Fall as Broader Market Steadies

Tesla stock ended the session down 1.6% at $323.90, while the S&P 500 dipped 0.2% and the Dow Jones Industrial Average managed a modest gain of less than 0.1%. Despite Musk seemingly stepping back from partisan politics—a move that could repair relationships with core left-leaning EV buyers—shares did not see a lift.

The muted reaction underscores that investors may already be looking past Musk’s political controversies. Barron’s noted that Tesla has shed about 18% of its value so far in 2025, though the stock remains up nearly 49% over the past year.

Brand Image and Sales Challenges

Tesla’s global vehicle sales fell 13% year over year in the first half of 2025, with executives citing “brand image” difficulties after Musk’s political visibility. His participation in the Trump administration, followed by highly publicized disputes with Trump, alienated some customers seeking environmentally focused, apolitical EV brands.

The political turbulence culminated in July when Musk vowed to launch a third party. Now, with that prospect fading, Tesla faces the challenge of stabilizing its consumer base and market momentum.

Product Developments: Model Y “L” in China

At the same time, Tesla is working to reinvigorate demand with new product variations. Earlier this week, the company launched the Model Y “L” in China—a six-seat configuration with a third-row bench and captain’s chairs in the middle. Musk announced on X that U.S. production for this variant will not begin until late 2026, and it may never arrive domestically if self-driving adoption accelerates.

The Model Y remains Tesla’s best-selling vehicle globally, and additional configurations could help counter current sales weakness, though the strategy may take time to deliver results.

AI and Self-Driving Valuation

Tesla’s long-term story continues to hinge on autonomous driving technology. Wall Street firms, including William Blair, remain bullish on the potential. Analyst Jed Dorsheimer recently estimated the value of Tesla’s AI-driven self-driving portfolio at nearly $1 trillion. Musk has reinforced this focus, emphasizing future mobility through autonomous fleets over incremental model design changes.

EVXL’s Take

Elon Musk’s apparent retreat from political party ambitions could ease one source of tension with shareholders, but Tesla’s pressing challenge is regaining buyer confidence amid brand image erosion and sliding sales. The limited positive reaction from investors suggests the market is prioritizing immediate delivery numbers, margin pressures, and competition over political risk factors.

Tesla is betting heavily on self-driving breakthroughs to justify its trillion-dollar valuation potential, but in the short term, success may depend on lineup expansion, such as the Model Y “L” in China. The crucial question: will Musk’s withdrawal from political headlines be enough to stabilize Tesla’s consumer appeal, or has the conversation permanently shifted toward execution challenges and aggressive competition, especially in China?

We’ve recently covered Tesla’s global sales outlook and Model Y strategy at EVXL Tesla. How do you see politics, product variety, and self-driving technology reshaping Tesla’s trajectory? Share your thoughts in the comments.