Tesla Faces Profit Pressure Amid Rising Costs and Political Ties

Tesla's shares dipped 3% as quarterly profit missed forecasts. Despite record sales, costs and fading regulatory credits impacted profits. Trump's policies and Musk's political connections raised backlash. Tesla launched cheaper models to revive demand. Investors focus on AI ambitions and Musk's future role amid financial challenges.

Tesla's shares experienced a 3% decline before the market opened on Thursday, as the electric vehicle company's quarterly profit failed to meet market forecasts despite achieving record sales. This downturn is attributed to escalating costs and dwindling regulatory credits.

This is the fourth consecutive time Tesla has fallen short of profit expectations, signaling that even this leading car manufacturer is not immune to the financial pressures affecting the automotive industry, especially as President Donald Trump introduces significant changes to U.S. policies. In 2025, Tesla's stock has been volatile, dropping as much as 39% due to weak demand and CEO Elon Musk's affiliations with the Trump administration, which incited political backlash and consumer boycotts.

Musk's vision for future advancements in AI, robotics, and autonomous driving has sustained investor interest, propelling Tesla's stock up nearly 9% this year. However, it remains a laggard among the 'Magnificent 7' mega-cap stocks. Matt Britzman, senior equity analyst at Hargreaves Lansdown, commented that the minimal stock pullback appears insignificant considering the previous six-month rally. Record electric vehicle sales allowed Tesla to surpass third-quarter revenue predictions, driven by a surge in American buyers rushing to benefit from expiring tax incentives. Yet, the removal of key tax breaks threatens to dampen demand for Tesla and other EV producers. Tesla introduced lower-priced 'Standard' versions of the Model Y and Model 3, offering reductions of up to $5,500 to counteract the decline in demand. The company's quarterly expenses were further burdened by over $400 million in tariffs on auto parts linked to Trump, according to Chief Financial Officer Vaibhav Taneja, compounded by the loss of tax and regulatory benefits. Though investor questions persist, Tesla's latest financial report offered little clarity on the costly and uncertain path towards its AI and self-driving car goals.

The upcoming shareholder vote on Elon Musk's compensation is viewed as critical for his retention as Tesla's 'war-time' CEO.

(With inputs from agencies.)