Tesla (TSLA, Financials) risks deeper brand damage if Chief Executive Officer Elon Musk continues splitting his time between the electric vehicle maker and the Department of Government Efficiency, Wedbush Securities analyst Dan Ives said in a report cited by Bloomberg.

Ives called Tesla's situation a "code red" moment, warning that Musk's political activities could lead to a 15% to 20% permanent decline in future demand. He urged Musk to return full time to Tesla and step away from his temporary government assignment. Musk is classified as a special government employee, permitted to work up to 130 days a year.

Two weeks ago, Ives slashed his Tesla price target by 43%, pointing to consumer backlash over Musk's ties to U.S. President Donald Trump's administration and its trade policies. Tesla shares have fallen 43% since Jan. 17, reflecting concerns over brand troubles, disappointing first-quarter deliveries, and growing protests in major markets.

Tesla is scheduled to report first-quarter earnings on Tuesday. Investors are expected to focus on the 2025 sales outlook, progress on autonomous driving, development of a robotaxi network, and tariff impacts. Musk's role in Washington remains a key overhang for the company's future.

Despite the turmoil, Ives maintained an outperform rating on Tesla, calling it one of the most disruptive technology companies globally. He warned that if Musk stays involved in politics, Tesla's brand damage could deepen and create lasting problems.

Musk is expected to step away from his government post once his 130-day limit is reached, sources familiar with the situation said.