The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

By Jonathan Guilford and Robert Cyran

NEW YORK, March 4 (Reuters Breakingviews) - Tesla TSLA.O is losing its wow factor. Boss Elon Musk has long relied on hyperbolic predictions to pump up the electric-car maker’s image, and its stock price – from how quickly vehicle production would ramp up, to the ever-impending arrival of self-driving cars and fleets of robo-taxis, to the appeal of its humanoid robot, Optimus. It all helped routinely foil doubters and short-sellers, while also creating the impression that Tesla would always be on the cusp of cracking the next big thing. Yet Musk's antics are now so divisive, his company so large and its challenges so stark that the same old tricks may no longer have the magic touch.

The shares are already reflecting unease, having plunged roughly 40% from their post-U.S. election high. Tesla investors are, to be fair, used to such slumps: the company’s market value fell by more than half in 2022 as Musk pursued his on-again-off-again-on-again acquisition of Twitter.

Yet despite the fall, any investor that has owned the stock for a decade will have bagged an over-2,000% return. Tesla is still worth some $970 billion and trades at more than 100 times estimated earnings for the next 12 months, according to analyst projections gathered by Visible Alpha. That’s more than 20 times the multiple General Motors GM.N sports.

Recently, though, that stretching valuation owes as much to declining expectations as investor froth. Revenue grew less than 1% in 2024; analysts’ projections for 2025 earnings per share have tumbled by roughly 55% in the past year, according to LSEG data.

Tesla has been slipping everywhere. The company’s share of the U.S. market for new electric vehicles fell to 44% in 2024’s final quarter, down from 78% three years earlier, data from industry tracker Kelley Blue Book shows. Its revenue fell 4% in China last year as industry-wide EV sales there grew 40%, according to research outfit Rho Motion. And its sales shrank far more dramatically than the wider market in Germany and France.

Musk’s political entanglements may make things even worse. Sure, Tesla shareholders are used to him devoting his time elsewhere – to Twitter, now renamed X; to SpaceX; to his artificial-intelligence and brain-interface side ventures. Their belief that it usually doesn’t interfere with the carmaker’s progress probably explains why they again approved his $56 billion pay package last year.

But his hunt for up to $1 trillion in cost savings as head of the U.S. Department of Government Efficiency is contentious. He is supporting right-wing political parties in Europe and has attacked governments there.

That’s alienating Tesla’s natural buying base: only 5% of Democratic voters have a favorable opinion of Musk, according to the EV Politics Group, while 74% of Republicans do. Snag is, 44% of Republicans say they would never consider an EV. People are protesting at Tesla showrooms; drivers are slapping stickers on their cars declaring, for example, “I bought this before Elon went crazy.” January sales in Europe suggest Tesla has a big problem, falling 45% year-on-year as the overall market grew.

This compounds the problem of price-eroding competition. Leases complicate the picture, but strip them out and revenue per car sold last quarter came in at a bit under $40,000, down substantially from a peak in mid-2022 of nearly $56,000. Assume recent declines stick - a 45% drop in deliveries in Europe and, say, 10% falls in the U.S. and China. That would imply 17% fewer deliveries year-over-year in regions accounting for substantially all sales in 2025. At today’s average selling price, that would bring in about $59 billion in revenue, a decline of more than a fifth compared with last year.

Granted, the sales crash may not last. But Tesla is in a starkly different situation to when it was a young company. Musk staved off imminent bankruptcy in 2008 with a last-minute funding deal. Over the next decade he sold truck-loads of equity and convertible bonds and raised a retail investor army to battle his hated short-sellers - to the point of selling them actual flamethrowers. Even then Tesla came within a month of bankruptcy around 2018 during the “production hell” of releasing its first mass-market car, the Model 3, Musk admitted in 2020.

With nearly $37 billion of cash, insolvency is not a real danger. But Musk’s innovation promises remain as outrageous as ever just as the core automotive business may have peaked until the next breakthrough arrives. The utopian pledges come in three forms.

First, the $25,000 car for the masses. Musk has been talking it up for years, but it is faltering. In 2023, the company said that a radical manufacturing overhaul could halve vehicle costs. It recently admitted that new, “more affordable” models will be produced on today’s factory lines, “achieving less cost reduction.” Again adjusting for leases, costs per car were a bit under $35,000 at 2024’s end. Just maintaining today’s profitability on a $25,000 car requires a 37% expense reduction. There is not much room to fall short.

Second, true self-driving. Last year’s no-steering-wheel Cybercab reveal underwhelmed. But executives say the company will launch a fully autonomous taxi service in Austin, Texas in June. Others, like Alphabet’s GOOGL.O Waymo, have offered driverless cabs for a while, though Tesla’s technological approach - if it works - could be cheaper. Powering the effort is a gigantic advantage: a 50,000-strong cluster of Nvidia NVDA.O chips fed by data from customers’ cars. In January, Tesla’s full-self-driving feature topped 3 billion cumulative miles driven.

Yet community-gathered performance metrics show certain improvements plateauing, and the data advantage is eroding. Chinese rival BYD 002594.SZ say it notches millions of miles of training data a day. That will grow after adding its moderately sophisticated “God’s Eye” system to truly mass-market cars as cheap as $9,555.

That leaves Optimus. With characteristic modesty, Musk pencils in a revenue potential for the humanoid robot division at $10 trillion or more. It’s an optimistic notion, certainly. But Tesla’s market value has long implied optimistic things. Morgan Stanley analysts peg just 20% of their valuation on its automative business, with various moonshots making up the rest.

Musk in the past relied on puffing up those moonshots’ prospects to help steer the company through tougher times. He may try again as competitors encroach and his own actions tarnish its cult-like brand. Yet plunging, or even just stagnating, vehicle sales will focus investors' minds on the downside. That will raise the prospect of Tesla’s future being less OMG and more like traditional carmaker GM.

Follow @JMAGuilford on X

(Editing by Antony Currie and Pranav Kiran)

((For previous columns by the authors, Reuters customers can click on GUILFORD/, CYRAN/ Jonathan.Guilford@thomsonreuters.com, robert.cyran@thomsonreuters.com))