Last week Brand Finance published their latest automotive brand valuation survey which showed Tesla dropping from first to third most valuable auto brand, overtaken by two old school brands, Toyota and Mercedes Benz. Tesla’s drop was significant, it’s brand, tumbled 28% to $43bn, while Toyota was up by 23% to $64bn. Brand Finance cited missed revenue expectations, slowing transition to EVs (not helped by the incoming Trump Administration) and price cuts in China due to growing competition. Tesla’s stock price dropped too, but remains significantly overpriced in some analyst’s views.
Musk’s most recent behaviour, acting as an unelected leader, empowered by Trump to wield a chainsaw over Federal Government, isn’t going to help Tesla’s cause. You could not imagine any other CEO of a public company being as unaccountable as Musk, or even remaining in place after his Nazi salute at Trump’s inauguration. But Elon is different, he is the nerdy ‘genius’ who has come to love attention and revels in being the star of the Trump show, which will, no doubt, have its own consequences in time.
The problem for Tesla is that he remains inextricably bound to his brands. That’s great when he’s talking engineering, but not when he’s expressing his ideological libertarian views, and broadcasting them to the world amplified by Twitter. Being a talented engineer doesn’t mean he should re-engineer society.
While X is now worth, at best, a quarter of what he paid for Twitter back in October 2022, substantially overpaying did establish him as a global digital media baron, a role that seems much more important to him, today, than his previous more admirable mission to ensure humans become an inter-planetary species.
Is Tesla now a toxic brand?
Without doubt, his politics and behaviour are directly impacting Tesla, with sales plummeting, not only because of competition and price pressure, but also because many of his core customers abhor his politics. Bumper stickers saying ‘I bought this before Elon went crazy’ are booming, but they are being bought not only to express dislike of Musk’s politics, but also as a pragmatic insurance policy to avoid their cars being vandalised, so strongly have feelings turned against the brand’s founder in many countries. A growing number of customers are replacing their Teslas with a Polestar, Audi or BMW, and an increasing number are selling their cars purely out of protest. In many European countries the public is so outraged there are ‘boycott Tesla’ campaigns running and protests outside Tesla dealerships and gigafactories. None of this is good for brand reputation.
The scale and speed of the change is staggering. In January, Tesla sales were down in countries where EV sales are strong: in Norway sales dropped by -40.2%, in Denmark -40.9%, Germany -59%, France -63% and Spain by a massive -75%. The UK’s -18% drop looks like a success story in this context. And it’s not just Europe, Tesla sales were down in the US and China and in Australia they plunged 33%.
California is the biggest single market in the US for EVs, but Tesla registered fewer cars in all four quarters of 2024, compared to previous years. Tesla sales of one of their most popular models, the Model 3 sedan, dropped by 36 percent. The January figures are not yet out, but you can guess the trajectory.
The Tesla product line may be ageing and Cybertruck a disappointment, but most owners still rate their Teslas; they just have a big problem with the founder and CEO. In Sweden, a market known for their adoption of sustainability and EVs, a recent Reuters poll showed only 11% of the public now have a positive view of the Tesla brand, illustrating how connected Elon Musk’s politics are with his consumer brands.
When a brand loses value, shareholders pay the price
It doesn’t take a genius (his mother, I understand, still thinks he is) to work out where this all ends up, because almost always, a brand crisis is followed by a stock crash. Tesla’s share price on Friday, February 14th was based on a heady P/E of 174x earnings, compared to Toyota’s 7.78x. When brand reputation suffers, sales go south and then it’s only a matter of time before Tesla’s frothy valuation (and the bulk of Musk’s wealth) goes the same way.
This must make a huge government contract for Tesla a high priority for Musk, no matter the screeching conflicts of interest. So, rumours of a $400m contract to buy ‘amored Teslas’ surfaced last week, subsequently denied by the State Department in the past few days. Watch this space for some other ‘Washington deals’.
With an ‘amored Teslas’ contract denied, for the moment at least, Musk has resurrected the prospect of a Tesla phone over the weekend, with its own operating system and Tesla, Starlink and Neuralink integration aimed at breaking Apple and Android’s hold on the already saturated smartphone market. While there have been plenty of rumours about this in the past, it seems, right now, Tesla desperately needs a new growth story.
Gravity always wins
As we mused on our October 2022 analysis of Elon Musk’s takeover of Twitter, we could be about to witness Musk’s Icarus moment, when the gravitational attraction of becoming a billionaire media baron (and now shadow president) burns brighter than his life-long vision to establish humans as an interplanetary species, but then burns his business interests up. As Thom Yorke and Radiohead acutely observed in the song Fake Plastic Trees, ‘gravity always wins’, so you would have thought that Elon the engineer would know better than to try political high flying with waxen wings.
Peter Matthews
Founder & CEO