Tesla’s dramatic fall in value at the start of 2025 has shocked the financial world, with the electric vehicle giant suffering the steepest drop in market capitalisation among large-cap stocks. As of June 5, Tesla’s market cap plummeted 29.3%, dropping to $917 billion from a peak of over $1.3 trillion earlier this year.
This drop represents a staggering loss of nearly $380 billion, making it the largest financial setback for a company this year.
The reasons behind Tesla’s unprecedented decline are multifaceted, involving a combination of falling demand for electric vehicles (EVs), the political fallout surrounding CEO Elon Musk, and a public feud with U.S. President Donald Trump. The market has been spooked by a series of developments in the past few months, contributing to one of the worst-performing years in Tesla’s history.
One of the primary reasons behind Tesla’s struggles is the drop in demand for electric vehicles. As consumer interest in EVs began to plateau after years of aggressive growth, Tesla’s once-predictable revenue stream faltered. Despite global efforts to push for cleaner energy solutions, electric car sales in several key markets, particularly China, showed signs of slowing down.
Analysts pointed out that consumers were becoming more cautious amid economic uncertainty and rising costs of living, which had led to a dip in the luxury car market as well.
While Tesla remains the market leader in electric vehicles, its competitors have been closing the gap, with traditional carmakers like Ford and General Motors ramping up their EV offerings, making the market more competitive. These new entries, backed by massive advertising and government subsidies, have put Tesla in a more challenging position than before.
Tesla’s woes were further exacerbated by the political controversies surrounding its CEO, Elon Musk. Musk has always been a figure of controversy, but his more recent ties to far-right groups and his vocal support of controversial political figures have only added fuel to the fire.
Musk’s political commentary on social media has become more frequent and often divisive, pushing some investors to question his ability to remain focused on Tesla’s core mission: accelerating the world’s transition to sustainable energy.
At the heart of Musk’s political tensions is his falling out with President Donald Trump. The two had been allies for years, with Musk even initially backing Trump’s White House bid. However, the relationship soured in 2025 when Musk began to publicly criticize Trump’s policies, particularly his tax and spending plans.
This criticism culminated in Musk’s blunt condemnation of Trump’s proposed budget, which included cuts to the popular $7,500 EV tax credit set to expire by the end of 2025. The removal of this incentive was seen as a direct threat to Tesla’s sales in the U.S., a blow to a company that has relied heavily on these subsidies to push EV adoption.
The breaking point came when Musk took to his X social media platform to criticize Trump’s economic and environmental policies, branding them a “threat to innovation.” In retaliation, President Trump posted on social media, threatening to cut off government contracts with Musk’s companies, including SpaceX, Tesla’s sister company.
The spat between Musk and Trump escalated further, with both sides exchanging sharp words, and tensions ran high in the financial markets.
On Thursday, Tesla’s stock took a major hit, losing 14% of its value in a single day after news broke of Trump’s threat. The loss erased over $150 billion from Tesla’s market value, the largest single-day drop the company has ever experienced. Short-sellers, who had been betting against Tesla’s stock, took home nearly $4 billion in profits, marking one of the largest single-day gains in history.
Despite the tension, investors seemed to have regained some optimism on Friday, when reports emerged that White House aides were working on a phone call to broker peace between Musk and Trump. Shares rose 5% in premarket trading as investors hoped that the conflict would de-escalate.
Musk himself signaled a willingness to ease tensions, agreeing with hedge fund manager Bill Ackman’s call for a detente, which helped soothe investor concerns.
Tesla’s massive losses are not unique to the company. The broader tech sector has also seen significant losses, with Apple, once the most valuable company in the world, experiencing a 20% drop in market capitalisation this year.
Apple’s decline, driven by weaker-than-expected demand in China, Trump’s tariff threats, and slow progress in AI, mirrored the difficulties facing Tesla. Apple, once valued at $3.7 trillion, has now fallen to $2.99 trillion, taking a backseat to Microsoft, which has become the new leader in market capitalisation.
While Tesla’s challenges are partly a result of broader economic factors, the company’s political entanglements have undeniably added to the uncertainty surrounding its future. Analysts suggest that Musk’s penchant for making bold statements, especially in political matters, has taken a toll on the company’s image and brand, especially in an era where investors are increasingly wary of uncertainty.
Despite the huge losses, some analysts remain optimistic that Tesla can bounce back. However, they caution that any long-term recovery depends on Musk’s ability to repair his relationship with Trump and steer clear of further political distractions.
Matthew Britzman, a shareholder and analyst at Hargreaves Lansdown, suggested that the feud might eventually cool down, noting that both Musk and Trump would likely avoid a protracted battle, as it would be detrimental to both sides.
“Those are obviously threats that are unlikely to come into fruition,” said City Index analyst Fiona Cincotta. “I don’t expect this to blow out into anything more serious than a war of words for a couple of days.”
For now, Tesla’s future remains uncertain, as the company faces a perfect storm of declining demand, political controversies, and fierce competition. While there may be some short-term stabilization as the dust settles from the Musk-Trump feud, Tesla will need to focus on regaining investor trust and boosting its product sales to remain a major player in the rapidly evolving EV market.
Tesla’s $380 billion loss in market value is a stark reminder of how quickly fortunes can change in the world of tech and finance. While the company remains a leader in the electric vehicle market, it now faces mounting challenges, from declining sales to political controversies that have tainted its public image.
Whether Tesla can overcome these hurdles will depend largely on Elon Musk’s ability to focus on the company’s core business and put aside the political drama that has so far been a significant distraction. The next few months will be critical in determining Tesla’s future as a dominant force in the global market.
