Tesla’s Real Problem Isn’t Politics — It’s the Business

While headlines continue to spotlight Elon Musk’s growing feud with President Donald Trump, the true crisis at Tesla runs much deeper than political drama. Behind the scenes, Tesla is facing a perfect storm of declining sales, weakening demand, shrinking profits, and the loss of a critical revenue source: regulatory credits.

Shares of Tesla fell nearly 7% on Monday, as investors digested not just Musk’s latest political moves — including the announcement of a new political party — but also a deteriorating business outlook that threatens to push the company back into the red.

Regulatory Credits: Tesla’s Hidden Profit Engine Is Vanishing

One of Tesla’s longstanding revenue lifelines — the sale of emissions credits to other automakers — is now in jeopardy. The recently signed tax and spending bill by Trump not only removes the $7,500 EV tax credit for buyers, but also eliminates penalties for failing to meet emissions targets, effectively killing demand for the credits.

That’s a major blow. Since 2019, Tesla has earned over $10 billion through the sale of these credits, which in many quarters were the only reason the company remained profitable. Without them, analysts estimate that Tesla would have reported losses in early 2024, and possibly again this quarter.

“Removing the regulatory credit revenue makes Tesla’s financials look far more fragile,” noted analysts at William Blair, who downgraded the stock this week and slashed their earnings forecast.

Robotaxi Hype vs. Reality

Musk continues to tout robotaxis, AI, and robotics as Tesla’s future. But progress has been slow — and problematic. The company’s pilot robotaxi program in Austin, Texas, is limited to a small group of users and still requires a Tesla employee in the passenger seat for safety.

Meanwhile, Waymo, Alphabet’s self-driving unit, already operates in four major cities and is preparing to launch in Miami and Washington, D.C. — in partnership with Uber. Tesla’s timeline for expanding its service, or removing human monitors, remains unclear.

And troubling videos have emerged of Tesla’s robotaxis driving on the wrong side of the road or colliding with parked cars, raising new concerns about safety and readiness.

“This is the moment when Tesla needs Musk fully focused on execution,” said one investor. “Instead, he’s launching a political party.”

Political Drama Now Hurting the Brand

Musk’s political turn — once seen as a boost during Trump’s 2024 campaign — is now backfiring. His decision to break from Trump and launch his own “America Party” has alienated supporters on both the left and right, compounding the damage to Tesla’s public image.

Tesla showrooms in the U.S., Canada, and Europe have faced widespread protests in recent months. Analysts worry the controversy could continue to depress sales, particularly among more moderate or liberal consumers.

Even Trump, once a Tesla cheerleader, turned on Musk this week, calling him “off the rails” and “a train wreck.”

“He’s managed to alienate both sides of the aisle — something few thought possible,” said Dan Ives of Wedbush Securities.

Sales Are Dropping — Even as the EV Market Grows

Perhaps the biggest warning sign: Tesla’s global sales fell 13% year-over-year in both Q1 and Q2 of 2025. That’s the worst decline in company history, and it’s happening even as EV adoption continues to grow worldwide.

The problem? Tesla’s market share is shrinking, as legacy automakers like GM, Ford, and Volkswagen launch compelling EVs, and Chinese competitors like BYD continue to surge — despite not even entering the U.S. market yet.

Adding pressure, the expiration of the $7,500 EV tax credit on October 1 is likely to further dampen demand. When Tesla lost this credit in 2019, it was forced to slash prices, cutting margins.

What Comes Next?

With sliding sales, diminished revenue streams, and brand damage, Tesla faces its most challenging chapter since its early days as a public company. And while Musk continues to promote ambitious visions of the future — including AI breakthroughs and robotic factories — Wall Street is losing patience.

The Tesla story isn’t over. But unless Musk refocuses on operations and stabilizes the business, the brand may lose more than market share — it may lose investor trust.