Tesla's Stock Surge: A Deep Dive into the Paradox of Growth and Decline

Tesla's Stock Surge: A Paradox of Growth and Decline

Tesla, the electric vehicle (EV) giant, has delivered a staggering 60% return to investors over the past year. However, this impressive performance stands in stark contrast to the company's declining market share, which has fallen to its lowest point since 2017. This paradox raises critical questions about the sustainability of Tesla's rally and the true drivers of its stock price.

The Market Share Conundrum

According to a Reuters report, Tesla's market share in the US EV market has dropped to 38% in August, the first time it has fallen below the 40% mark since October 2017. This decline can be attributed to several factors, including the company's strategic shift away from the EV market. Tesla is now focusing on building robotaxis and humanoid robots, while other EV manufacturers are launching new models and capturing market share.

Key data points:

1. Tesla's last new model was the Cybertruck, which rolled out in 2023.
2. The refreshed Model Y, once the world's best-selling car, is on track for a second year of sales decline.
3. Tesla has delayed and canceled plans for cheaper electric vehicle models.

Investor Sentiment and Long-Term Bets

Despite the soft sales, Tesla's stock has seen a phenomenal one-year return. Justin Khoo, Senior Market Analyst at VT Markets, explains that this is because investors are looking beyond near-term auto margins and focusing on Tesla's long-term bets in AI, robotics, and energy.

"Investors are paying for Tesla's longer-term bets in AI, robotics, and energy," said Khoo. "The full self-driving program, robotaxi ambitions, and fast-growing energy storage business with 30% plus margins are seen as potential high-margin growth engines."

The Role of Competition

While Tesla's stock is soaring, competition in the EV market is intensifying. Viram Shah, Founder & CEO of Vested Finance, points out that soft sales and competition are weighing on the company. "Switch the frame to this year, and the picture changes, as Tesla is down nearly 10% year-to-date after deliveries softened and competition ate into its lead," said Shah.

The Impact of Elon Musk's Actions

Elon Musk's association with President Donald Trump has also had a negative impact on the Tesla brand. This, coupled with the company's strategic shifts, has created a complex narrative for investors to navigate.

Projections and Outlook

From September 2025 onward, the paradox is that Tesla may keep losing share in a rapidly expanding global EV market but still grow sales in absolute terms. For investors, the stock remains highly volatile.

Upside depends on:

1. Flawless execution of new models.
2. Progress in autonomy and AI.

Risks include:

1. Further margin erosion.
2. Intense competition from Chinese EV manufacturers.

The Best Positioning for Investors

Khoo advises investors to hold existing shares, trim if overweight, and add only on pullbacks or when new catalysts such as the affordable model launch materialize. "The best positioning is to hold existing shares, trim if overweight, and add only on pullbacks or when new catalysts such as the affordable model launch materialize," he said.

The Bottom Line

Tesla's stock surge is a testament to investor confidence in the company's long-term vision, despite the challenges it faces in the EV market. As the global EV market continues to expand, Tesla's ability to execute on its ambitious plans in AI and robotics will be crucial for maintaining its position as a leader in the industry.