Tesla shares slump 21% in 2025 YTD despite broader S&P 500 gains, raising investor fears of underperformance amid strong market backdrop. Margins compress, profits shrink, and valuation remains steep, pushing sentiment into caution territory.
Tesla Inc. (NASDAQ: TSLA) is headed toward one of its worst annual stock performances in the past 10 years, with a decline of approximately 21% year-to-date as of mid-July 2025. This stark underperformance comes even as the S&P 500 has risen by 7% in the same timeframe, signaling Tesla’s increasing divergence from broader market trends. For long-time investors, this marks only the second time in a decade the EV giant may register an annual fall exceeding 20%, the previous instance being the 65% plunge in 2022 amid global macroeconomic turmoil.
Tesla stock is down 21% so far in 2025
Only other >20% annual decline occurred in 2022 (-65%)
S&P 500 is up 7% in 2025 YTD, highlighting Tesla’s sharp underperformance
Over the past 10 years, TSLA has returned 1,700%, versus 200% for the S&P 500
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Profitability, Margins, and CEO Controversy Cloud Tesla’s Future
The biggest drag on Tesla’s performance this year has been its shrinking profitability and thinning margins, amplified by rising global competition in the electric vehicle space. In Q1 2025, Tesla reported automotive revenues down 20% YoY, marking one of its weakest topline quarters in years. Profit margins have taken a significant hit as price cuts, higher production costs, and discounting strategies fail to offset volume growth. Meanwhile, Tesla’s quarterly net income has fallen to multi-year lows, further dampening investor sentiment.
Adding to the challenges, Tesla’s CEO Elon Musk came under fire earlier this year for his role leading Donald Trump’s Department of Government Efficiency, which became controversial due to abrupt federal budget cuts. Although Musk has since stepped away from the position, the episode contributed to mounting public and institutional concern about corporate governance and leadership distractions at Tesla.
Q1 2025 revenue down 20% YoY
Profit margins compressed amid competition and pricing pressures
Musk’s political involvement adds to investor uncertainty
High Valuation Becomes a Double-Edged Sword
Tesla’s market capitalization continues to hover around the $1 trillion mark, and its stock trades at a lofty 180x trailing earnings, making it one of the most expensive stocks in the S&P 500 by earnings multiple. Such a high valuation requires robust earnings growth to sustain investor confidence—something Tesla has struggled to deliver recently. With automotive revenue sliding and little clarity on when margins might rebound, the case for continued premium valuation is weakening.
Tesla trades at 180x trailing earnings
Market cap remains elevated at $1 trillion
Revenue decline challenges growth premium
Historical Performance vs Current Reality
Over the past decade, Tesla has delivered stunning returns, with gains around 1,700%, far outpacing the S&P 500’s 200% rise. Yet this record masks the increasing difficulty of sustaining such growth, especially at current scale. While Tesla logged 743% gains in 2020 and 101% in 2023, the company’s momentum now appears to be waning. Investors who entered during the recent highs are growing wary as the stock struggles to meet lofty expectations.
| Year | S&P 500 | Tesla Stock |
|---|---|---|
| 2025 (YTD) | +7% | -21% |
| 2024 | +23.3% | +62.5% |
| 2023 | +24.2% | +101.7% |
| 2022 | -19.4% | -65% |
| 2021 | +26.9% | +49.8% |
| 2020 | +16.3% | +743.4% |
Long-term returns impressive, but recent results underwhelm
2025 could be second-worst year for TSLA in a decade
What Investors Should Watch Going Forward
For Tesla to reverse its 2025 slump, it must restore profitability, defend its margins, and rebuild investor trust. The upcoming quarterly results will be key, as will updates on cost-control efforts, new product launches, and expansion into emerging markets. Furthermore, Elon Musk’s reduced political exposure could give some respite to brand perception, though fundamental performance will be the real catalyst for recovery.
Investors should closely monitor:
Next quarterly earnings and margin trends
Competitive pressures from Chinese and legacy automakers
Production guidance and global EV demand
Musk’s involvement in external political or business initiatives
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