After soaring following the election, Tesla (TSLA -3.58%) stock ran into a wall in February as a number of news items, macro challenges, and CEO Elon Musk's involvement in the Department of Government Efficiency (DOGE) initiative all seemed to contribute to a sharp pullback in the stock.

When the dust settled for February, the stock had lost 28%, according to data from S&P Global Market Intelligence.

As the chart below shows, the stock fell through most of the month.

^SPX data by YCharts

The Tesla-Trump trade is over

Tesla stock soared following the election as investors seemed to believe that Musk's close relationship with Donald Trump would benefit his EV company. However, that thinking seemed to unravel last month as there's little that Trump can do to directly support Tesla, and Musk's persona seems to be turning off some potential customers due to his leadership in federal government layoffs, support for a far-right party in Germany, and other moves.

There wasn't a single factor driving Tesla stock lower last month, but investors seemed to believe that the stock was overvalued following a post-election run-up in the price that came with little change in the business's fundamentals. Investors seem to believe that Musk's work with the Trump administration is becoming a distraction to him. Additionally, the stock fell after he put together a $97.4 billion offer with other investors for OpenAI.

Tariffs are also likely to weigh on Tesla as they will on the rest of the auto sector, and pressure on China could also impact a valuable market for Tesla. 

According to European registration data, a proxy for sales, Tesla registrations in Europe dropped by 45% in January on a year-over-year basis, even as overall sales of EVs were up 37%.

That's just one month's worth of data, so it could be subject to supply chain fluctuations or similar issues, but if the trend holds, it could be devastating for Tesla. There's other anecdotal evidence that sales are declining in California, and that anti-DOGE protestors have taken to Tesla stores.

A Tesla Cybertruck. Image source: Tesla.

What it means for Tesla

It's difficult to say what the reputational risk or damage to Tesla stock is from Musk's embrace of politics, but there clearly is some.

If the fundamentals of the business were stronger, Tesla stock might be closer to a floor, but the company reported a decline in vehicles sales last year, and the stock is still expensive, trading at a price-to-earnings ratio well above 100, meaning it could still fall a lot further. Investors are hopeful that AI and robotaxis will drive the next leg up for the stock, but maintaining a strong reputation with consumers is key for making that happen. Musk may be destroying those prospects without knowing it.