Tesla Inc. (TSLA) is grappling with significant brand damage that has taken even seasoned analysts by surprise. J.P. Morgan analysts have described the backlash against CEO Elon Musk as unprecedented in the automotive industry, raising concerns about the company’s future sales and reputation. As protests against Musk’s political affiliations escalate, Tesla’s recent sales performance has suffered, leading to lowered expectations for the remainder of the year.
In the first quarter of 2023, Tesla delivered 336,681 electric vehicles, falling short of Wall Street’s already lowered expectations. J.P. Morgan had forecasted 355,041 units, which was below the consensus estimate. This disappointing performance marks Tesla’s worst quarterly sales since 2022 and highlights the growing impact of Musk’s political involvement on the company’s brand equity.
Analysts at J.P. Morgan, led by Ryan Brinkman, noted that the consumer reaction to Musk’s political activities may have been underestimated. The firm stated in a recent note that the backlash against Tesla has become a significant concern, with nonviolent protests and vandalism targeting the company and its customers. This negative sentiment has led to estimates that Tesla may have lost around 80,000 deliveries due to brand damage, according to Gene Munster of Deepwater Asset Management.
Dan Ives, an analyst at Wedbush Securities, echoed these sentiments, labeling the sales report a “disaster on every metric.” He emphasized that there is no doubt that Musk’s political stance is adversely affecting Tesla’s sales. The analysts at J.P. Morgan have also revised their full-year sales expectations downward, anticipating a risk to deliveries and earnings for every quarter moving forward.
The first quarter’s earnings per share (EPS) estimates have also been adjusted, with J.P. Morgan now projecting 36 cents, down from an earlier estimate of 40 cents and significantly below Wall Street’s consensus of 46 cents. For the full year, the EPS forecast has been lowered to $2.30, down from $2.35, and well below the consensus of $2.70. The analysts expect second-quarter sales to reach 404,000, a decline from 462,890 in the same period last year.
Tesla’s stock has taken a hit, sliding approximately 30% this year as of the market’s close on Thursday. The decline is largely attributed to the backlash against Musk, whose political activities have drawn ire from various groups. However, there was a brief surge in Tesla’s stock following reports that Musk would be leaving his official government position by June. While he is expected to remain a “friend and advisor” to the White House, investors are hopeful that his departure from the government will allow him to refocus on Tesla.
Despite the optimism surrounding Musk’s potential exit from government, Tesla’s stock dropped 5% in pre-market trading on Friday as broader market concerns continued, particularly in light of former President Donald Trump’s new tariffs. The proposed 25% tariffs on foreign vehicles and parts are expected to impact Tesla, as both Musk and CFO Vaibhav Taneja have acknowledged the challenges of sourcing certain components domestically.
In a recent letter to the U.S. Trade Representative, Tesla highlighted that while it has localized a significant portion of its supply chain, some parts remain difficult or impossible to source within the U.S. Currently, between 60% and 75% of the parts used in Tesla’s electric vehicles are manufactured domestically, although this varies by model.
As Tesla navigates these turbulent waters, the company faces the dual challenge of restoring its brand reputation while adapting to a changing regulatory landscape. Investors and analysts alike will be closely monitoring the company’s performance in the coming quarters to gauge the long-term impact of Musk’s political involvement and the broader market conditions on Tesla’s future.
