Tesla’s stock dropped sharply on July 1, 2025, falling 6.9% in early trading to $295.69, following a 1.8% decline the day before. This drop comes amid two major headwinds: CEO Elon Musk’s increasingly public feud with President Donald Trump, and weakening global demand in core markets like China and Europe. For traders and investors, the situation has reignited questions about Tesla’s political risk, global demand outlook, and broader valuation story.
Political Feud Adds Uncertainty
The conflict between Musk and Trump has been building for weeks. After President Trump introduced his sweeping “One Big Beautiful Bill” – a legislative proposal that prioritizes defense spending and cuts clean energy incentives – Musk criticized the bill publicly, calling it “fiscally dangerous” and “hostile to the future.” He went so far as to threaten the launch of a new political party if the bill passed.
Trump responded by implying that Tesla and SpaceX are over-reliant on federal subsidies and hinted that the newly formed Department of Government Efficiency (DOGE) might re-examine the contracts and grants tied to Musk’s companies. “If the government steps away,” Trump said in a televised speech, “I wonder how long the empire lasts.”
The feud has created a cloud of regulatory uncertainty. While Tesla has navigated both Democratic and Republican administrations before, analysts say Musk’s personal politics are increasingly overlapping with Tesla’s corporate exposure, making the company a lightning rod for policy shifts.
Weakening Demand Abroad
Beyond political drama, Tesla’s fundamentals are also flashing warning signs. In May 2025, Tesla’s sales in China dropped 15% year-on-year, according to data from the China Passenger Car Association. Local competition from BYD and Nio, coupled with growing EV inventory and economic slowdown, has pressured Tesla’s pricing power.
In Europe, Tesla faces intensifying headwinds in markets like Germany, Norway, and the Netherlands. Several EU-based EV manufacturers have begun undercutting Tesla on price, while governments scale back EV subsidies. Tesla’s Berlin Gigafactory has seen reduced output hours, and local labor unrest has already started affecting logistics and supply chains.
All of this puts Tesla’s global margin outlook under pressure. The company’s previously strong gross margins in the automotive segment—once exceeding 25%—have slipped closer to 18%, with some quarters dropping below 17%. Investors are now asking whether Tesla can maintain its tech-premium narrative in a highly commoditized EV landscape.
Analyst Reactions Split
Wall Street analysts have responded to the Tesla developments with caution. Dan Ives of Wedbush continues to back Tesla with an “Outperform” rating and a $500 price target, citing the company’s strength in software, battery tech, and full self-driving development. However, Ives acknowledged that the Musk–Trump “junior high school feud” adds short-term headline risk that could weigh on institutional confidence.
Other firms are less optimistic. Goldman Sachs downgraded Tesla to “Neutral,” citing both global demand concerns and the unpredictable nature of Musk’s political behavior. JPMorgan also issued a note warning that regulatory backlash could become a real risk in the second half of 2025, especially if Trump gains traction with GOP-aligned regulatory agencies.
Institutional Behavior and ETF Flows
Tesla’s high visibility in global indexes and ETFs also adds another layer of complexity. Over the past week, several EV-focused ETFs, including ARK Innovation and Global X Autonomous & Electric Vehicles ETF, have reduced their Tesla weightings slightly. While this might reflect short-term rebalancing, some analysts suggest these moves may pre-empt further price volatility driven by geopolitical and executive factors.
In parallel, some institutional funds have begun trimming exposure to Tesla not strictly due to fundamentals, but due to what is known as "headline risk"—the kind of unpredictable events or statements that cause outsized price movements and PR blowback. Musk’s unpredictable messaging on X (formerly Twitter), combined with contentious remarks about President Trump, have elevated this concern.
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The Bigger Picture: Innovation vs. Influence
Tesla’s core business remains strong in several areas. Its energy division, particularly its battery storage segment, has shown high-margin growth. The Full Self-Driving (FSD) Beta continues expanding into new markets, and Tesla’s AI training compute is among the most advanced in the auto industry.
Yet, the broader narrative surrounding Tesla is now as much about Musk’s political entanglements and regulatory exposure as it is about product or technology. For some investors, that duality is unsustainable. For others, it’s simply part of the Tesla story—an ongoing tension between disruption and discipline.
Either way, traders using CFDs must approach Tesla with a clear understanding of these overlapping layers: macroeconomics, policy shifts, corporate execution, and public perception.
This makes Tesla a rare case study of how modern equities can be driven not just by fundamentals, but by the personal dynamics of the CEO at its helm—and the policies of the governments shaping its operating landscape.
