Why Shares of Tesla Are Falling Ahead of Elon Musk's Big Day

Shares of electric vehicle (EV) maker Tesla (NASDAQ: TSLA) were trading about 7% lower as of 1:03 p.m. ET Monday. That sell-off came as tensions between the U.S. and China continued to escalate and as investors looked ahead to Tesla's first-quarter earnings report, which is due out after the market closes Tuesday.

Musk will face the music

U.S. stocks broadly fell on Monday morning after China's government warned that it will retaliate against any countries that partner with the U.S. on trade in ways that hurt China economically. In addition, market watchers pointed to President Donald Trump's tariff policies and his latest social media tirades against Federal Reserve Chair Jerome Powell as drivers of Wall Street's slide.

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However, when it comes to Tesla specifically, investors are focused on the company's upcoming earnings report. The EV maker has already revealed that its deliveries were weak in the first quarter, but after months of controversial actions by CEO Elon Musk in his public sector role, the Q1 earnings call will provide analysts the opportunity to pose questions to him on topics ranging from Tesla's struggling EV business to its new initiatives. It's also possible they'll ask him about his involvement with the Department of Government Efficiency (DOGE) and Trump's tariffs.

Wedbush analyst Dan Ives, a longtime Tesla bull, said on Monday that Musk faces a "code red situation" if he doesn't start to distance himself from Trump and DOGE. In a recent research note, Ives wrote that Tesla could face "potentially 15%-20% permanent demand destruction ... due to the brand damage Musk has created with DOGE."

Questions about the EV business

On Tesla, Musk will need to reassure investors about the core EV business, which seems to be losing traction in China and Europe, as well as longer-term catalysts for the company like cheaper models, full self-driving, and robotics, hopes for which seem to be propping up the stock and justifying its nosebleed valuation.

Many traders still believe that Tesla will be a generational artificial intelligence company and that it will continue to change the world. Those things could eventually prove to be true, but I prefer to avoid stocks that aren't trading based on their fundamentals, especially when their core businesses appear to be losing steam.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.