Tesla Shockwave: Europe Turns Away, Robotaxi Risks Rise, and Elon’s Reputation Tanks

Tesla (NASDAQ:TSLA) is confronting a barrage of challenges that have rattled its dominance in the electric vehicle market and clouded the outlook for its ambitious robotaxi rollout. In Europe, Tesla's car sales plunged nearly 28% year-on-year in May, marking the fifth consecutive monthly decline as consumers shift to cheaper Chinese electric vehicles. The company’s European market share fell to just 1.2%, down from 1.8% a year earlier, sparking concerns about competitive positioning. Meanwhile, the National Highway Traffic Safety Administration (NHTSA) in the U.S. has initiated inquiries into videos showing Tesla's newly launched robotaxi operating unsafely. The agency is scrutinizing the company's limited deployment in Austin, Texas, particularly its handling of lane discipline and speed limits. At the same time, CEO Elon Musk’s entanglement with the U.S. government, his political involvement with the Trump administration, and growing protests across Tesla dealerships in Europe have further strained the company’s brand and reputation. These issues come as Tesla faces new tariffs, stiffening competition, and operational challenges that threaten to derail its future growth trajectory.

Declining European Sales Amidst Chinese Competition

Tesla's sales decline in Europe underscores the intensifying competition from Chinese electric vehicle manufacturers and the strain of brand erosion linked to Elon Musk's political controversies. According to the European Automobile Manufacturers Association, Tesla's sales dropped 27.9% year-on-year in May, to 13,863 units across the EU, Britain, and EFTA regions. This marked the fifth straight month of declining sales, dragging Tesla's European market share to 1.2% from 1.8% in May 2024. Simultaneously, Chinese EV makers sold 65,808 units in Europe last month, doubling their market share to 5.9%. Despite the EU imposing tariffs on Chinese EVs, Chinese automakers have maintained momentum by pushing plug-in hybrids and full hybrids into the market. Tesla, meanwhile, has suffered from growing backlash tied to Musk's high-profile political activities, including his $300 million support for Donald Trump's reelection campaign and his controversial tenure in the Department of Government Efficiency (DOGE). Protests erupted at Tesla dealerships across Europe in response, further damaging consumer confidence. While Tesla hoped the revamped Model Y would turn things around, especially in Norway, results have been uneven. The shift of European consumers to cheaper Chinese alternatives has placed Tesla under significant pricing and market share pressure, raising concerns about its ability to sustain growth in the region amid heightened competition and trade tensions.

Regulatory Scrutiny Over Robotaxi Safety

Tesla's rollout of its robotaxi program in Austin, Texas, has drawn the attention of the NHTSA after online videos showed concerning incidents, including a robotaxi driving in the wrong lane and speeding. The agency noted it "is aware of the referenced incidents and is in contact with the manufacturer to gather additional information." Tesla began its limited, paid robotaxi test service in Austin with plans to avoid bad weather, difficult intersections, and underage passengers, but concerns remain. NHTSA emphasized that it does not pre-approve new vehicle technologies; rather, manufacturers self-certify, and the agency intervenes when there are potential safety defects. Tesla has already faced scrutiny since October over collisions involving vehicles using Full Self-Driving (FSD) software in low-visibility conditions, covering 2.4 million vehicles. This includes four reported crashes, one of which was fatal in 2023. Amid these inquiries, Tesla told NHTSA its responses are confidential business information and should not be made public. Such opacity could compound regulatory concerns and heighten skepticism about the safety of Tesla's self-driving technology. Tesla continues to assert confidence in achieving large-scale autonomy, but persistent scrutiny and real-world incidents threaten to slow rollout plans, delay profitability targets, and undermine public trust in its autonomous driving roadmap.

Supply Chain Strains & Tariff Pressures

Tesla is confronting significant tariff-related headwinds and supply chain constraints that are affecting its vehicle and energy businesses. The company has long touted its efforts to regionalize supply chains to mitigate risks, with approximately 85% of its North American vehicle lineup being USMCA compliant. However, new U.S. Section 232 auto tariffs, including those affecting Canada and Mexico, are expected to impact profitability beginning in May. The impact on Tesla's energy business is particularly acute, as it sources LFP battery cells from China and is still building up local manufacturing capacity. Tesla's CFO Vaibhav Taneja acknowledged that while the Megafactory in China, which started operations in Q1, will serve markets outside the U.S., tariffs pose a significant cost to U.S.-based operations. Meanwhile, Tesla also faces cost pressures on capital investments, as much of its new equipment still comes from China and is now subject to tariffs, pushing CapEx guidance above $10 billion for the year. Despite Tesla's vertical integration in lithium refining, cathode production, and in-house battery cell manufacturing, it is not completely insulated from global trade uncertainties. These challenges raise questions about the company's ability to scale new products like Optimus and Cybercab while protecting margins in the face of rising geopolitical tensions and shifting global trade policies.

Final Thoughts

Source: Yahoo Finance

Tesla’s stock performance and volatility clearly reflects its operational struggles over the past few months. The company is obviously is grappling with a complex web of challenges, from shrinking market share in Europe and regulatory scrutiny of its robotaxi program to political blowback against Elon Musk and rising tariff pressures. While the management remains focused on advancing autonomy, ramping Optimus production, and expanding energy storage deployments, the path ahead is fraught with uncertainties. Hence, we believe that investors should be very careful with America’s favorite EV stock and weigh its positive strides in technological innovation and potential future growth against persistent regulatory, operational, and reputational risks before making an investment decision in Tesla.