Elon Musk has always been in the spotlight, but lately, he’s arguably the most talked about person in the world. This raises an important question: What does all this attention mean for Tesla, and is it affecting the company’s brand equity?
Answering this question is inherently subjective and difficult to quantify. Some critics point to Tesla’s lackluster EV sales as evidence that Musk’s political activities have harmed the brand and its sales. Others argue that Musk’s political evolution has broadened Tesla’s addressable market beyond its traditional base in affluent, more liberal coastal enclaves.
However, the fundamental factors impacting Tesla's EV sales predate Musk's heightened political activities. The company's recent stock performance reflects this complex dynamic. Tesla's post-election rally has lost steam following a disappointing Q4 2024 earnings report, weak EV sales, and initial robotaxi rollout details that appeared modest compared to market expectations.
Steve Jobs vs. Elon Musk
When reflecting on the greatest tech entrepreneurs and innovators, comparisons between Steve Jobs and Elon Musk are inevitable. Both are renowned for their relentless drive, often pushing their teams to the brink in pursuit of perfection and groundbreaking innovation. Jobs was famous for his "reality distortion field," a mix of inspiration and intimidation that compelled his employees to achieve the seemingly impossible. Despite their shared intensity, the unique "superpowers" that define their success are distinctly different.
Steve Jobs' ability to innovate stemmed not from figuring out what the consumer wanted, but from his remarkable talent for inventing entirely new categories of products from the iPod to the iPhone to the iPad. His intuition for what consumers wanted, even before they knew they wanted it, was exceptional.
Jobs’ superpower was his ability to blend design, technology, and storytelling to create products that transcended their functionality. Jobs’ relentless focus on simplicity, user experience, and end-to-end integration set Apple on a trajectory of consistent success.
To understand what’s next for Tesla, it’s useful to unpack the key attributes Elon Musk brings to the table, but also where he differs from Steve Jobs.
While Jobs possessed a unique intuition for understanding and anticipating consumer desires, Elon Musk and Tesla's management team have recently faced challenges in their EV business, largely stemming from misjudging consumer tastes. As recently as Fall 2023, Tesla’s management continued to reference its 50% EV volume CAGR target originally outlined in early 2021. However, EV volume growth projections have since become more cautious. Against this backdrop, Tesla overestimated the sales potential of the Model 3 and Model Y by underestimating consumers' demand for variety and choice. More recently the radical design of the Cybertruck has failed to resonate with most consumers, leading to sales significantly below expectations.
Musk and Tesla's management have also misjudged consumer reactions to the company’s vehicle price cuts over the past two years, which were implemented to support EV revenues. This strategy has likely eroded Tesla’s brand equity, particularly by contributing to a sharp decline in vehicle residual values, undermining customer confidence in the long-term value of their purchases. In stark contrast, Apple has consistently focused on preserving brand equity and driving up average selling prices. Through consistent product iterations that enhance user experience and utility, Apple has successfully maintained its premium positioning in the market.
Unlike Jobs, Musk’s superpower doesn’t lie in predicting consumer behavior and taste but in challenging conventional wisdom, envisioning a future others deem impossible, and achieving unparalleled operational efficiencies.
Where others saw obstacles—batteries deemed too expensive, charging infrastructure nonexistent, and widespread consumer skepticism—Musk saw opportunity. His appetite for risk has been a defining ingredient of his success. This willingness to take risk to achieve ambitious goals has been central to Tesla and Elon Musk’s remarkable track record of success.
Tesla’s Bet on Autonomy
While Tesla’s EV sales face near term challenges and there is work to be done to reignite EV growth, the company is increasingly becoming a bet on autonomy. Although Musk has expressed optimism about Tesla’s robotics efforts, centered on Optimus, the more immediate business driver is the launch of unsupervised FSD (Full Self-Driving) and its robotaxi service.
Musk’s skill set and superpowers appear well-suited to tackling the complex, open-domain problem of fully autonomous vehicles. However, its also his frequent impulse to go against the grain and take a different path, such as adopting a camera only senor suit, that may result in slower than expected expansion of the company’s robotaxi business.
As highlighted in my note The Ultimate “Killer App,” Tesla’s pursuit of a pure end-to-end neural network system represents the “holy grail” of autonomous technology, with the promise of scalability and reduced reliance on rule-based systems.
Yet, this strategy still faces inherent technical challenges in handling real-world variability and edge-case scenarios. Overcoming these hurdles may take considerable time, allowing Waymo to extend its first-mover advantage in fully driverless services as Waymo's "compound AI system" approach currently enables a more robust and commercially viable platform.
It’s uncertain whether Tesla will be able to transition instantly from its current supervised Full Self-Driving (FSD) system to a unsupervised, driverless robotaxi service without undergoing an interim period of testing with safety drivers in Austin. For context, Waymo conducted extensive testing of its unsupervised system with safety drivers over a considerable period before transitioning to a fully driverless service. This precedent suggests a meaningful risk that the rollout of Tesla’s Austin robotaxi service, as well as its subsequent expansion to other cities, will progress more slowly than expected.
EV and Energy Storage Outlook
Although Tesla is doubling down on autonomy, its near-term financial success will remain heavily reliant on EV fundamentals until robotaxi services achieve meaningful scale. Despite facing current challenges, Tesla continues to hold significant competitive advantages in the EV market. However, to reignite growth, a more robust and diverse product pipeline will be essential.
Tesla’s stock remains highly sensitive to unit sales trends, and the lack of a fresh product lineup has constrained auto sales growth. While the global launch of the Model Y refresh may provide a temporary boost in sales, it's important to remember that this is only a refresh. As the Model 3 refresh demonstrated, refreshing an existing model is not a substitute for introducing new models. It is more likely to support existing sales than stimulate significant growth. Even with potential new vehicle launches in 2025, the production ramp will take time and given Tesla’s history of new vehicle delays, an increase in auto sales volume growth is more likely in 2026.
An undoubtedly controversial idea to address Tesla’s product portfolio limitations would be to acquire Rivian. While such a move is highly unlikely due to significant integration challenges and Rivian’s partnership with Volkswagen, it offers an intriguing thought experiment. Tesla is currently underexposed to the U.S.'s most profitable vehicle segments: traditional SUVs and pickup trucks. Rivian’s product portfolio would complement Tesla’s lineup, providing an additional growth platform.
Acquiring Rivian would be a bold strategy to bridge this gap and diversify Tesla's offerings. Even in a future dominated by autonomous vehicles, consumer preferences are likely to include a variety of vehicle types tailored to meet different needs. For Rivian, such an acquisition could unlock cost synergies and economies of scale, both of which are critical for achieving profitability in the competitive EV market. Tesla’s operational expertise and manufacturing efficiencies would make it uniquely positioned to accelerate Rivian’s path to profitability.
While EV growth has slowed, energy storage is emerging as Tesla's most important near-term growth driver, with projected 50% year-on-year growth in 2025 and margins well above the corporate average. Energy storage gross margins have benefited from cost reductions and Inflation Reduction Act manufacturing credits. However, potential changes to the IRA, such as the rollback of the 45X production tax credit, would pressure energy storage margins.
Potential Narrative Shift in 2025
Elon Musk's incredible force of will suggests that it would be unwise to count him out. However, Tesla is navigating a transitional phase. In the short term, Tesla's stock may remain under pressure through Q1 2025 as weak EV fundamentals and sales trends weigh on sentiment. A rebound could follow, driven by anticipation of the initial launch of Tesla's robotaxi service in Austin in June. However, beyond this milestone, the stock could face a period of underperformance given the risk that expectations for unsupervised Full Self-Driving (FSD) may not be met.
If Tesla's narrative shifts towards unmet expectations for unsupervised Full Self-Driving (FSD) and delays in expanding robo-taxi services, the stock will become increasingly dependent on new EV product launches driving growth in 2026. However, near-term efforts to kick-start EV revenue growth may be complicated by the Trump administration's potential reduction or elimination of EV tax credits in the Inflation Reduction Act. This could lead to slower sales of Tesla's existing models, potentially offsetting some of the growth from new models. While some have argued that a rollback of EV tax credits under the IRA could benefit Tesla relative to its competition, this perspective overlooks the fact that it would effectively result in a price increase for Tesla vehicles in the U.S. Historically, in all markets, reductions in EV subsidies have had a negative impact on sales, making such a rollback a potential headwind for Tesla’s growth.
Tesla's Balancing Act
Tesla's future remains tied to its ability to balance near-term EV performance with its long-term vision for autonomy and robotics. Over the last two years, it has become clear that analyzing Tesla's financials in isolation is insufficient for understanding its stock's trajectory. While valuation matters, the real driver of Tesla's share price will continue to be the market's perception of key narrative shifts.