Tesla Has a Problem That Trump Can't Fix. Is It a Red Flag for Investors?

Almost no other stock has done better since the presidential election than Tesla (NASDAQ: TSLA).

From Nov. 5 to the end of the year, shares of the electric vehicle (EV) maker jumped 61% and had nearly doubled before the Federal Reserve scaled back its forecast for interest rate cuts in 2025.

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It's not a surprise that Tesla stock soared in the aftermath of the election. CEO Elon Musk bet big on President-elect Trump, campaigning on stage with him and pouring hundreds of millions of dollars into his campaign, and investors expect that contribution and access to pay off once Trump becomes president.

Musk has been camping out at Mar-a-Lago, aiming to bend the president-elect's ear, and the market is hopeful that the Trump administration could streamline rules around autonomous vehicles (AVs) that will make it easier for Tesla to deploy its new Cybercab and lead the transition to AVs.

However, Tesla is facing a more pressing issue, and it's not one that any Trump policy can meaningfully change. Demand for its vehicles appears to be plateauing, and the latest quarterly delivery report offered more evidence of sales headwinds.

Image source: Tesla.

Tesla deliveries miss the mark

Tesla's latest business update casts a harsh light on the company's biggest challenge right now. The EV leader reported fourth-quarter deliveries that were weaker than expected, delivering 495,600 vehicles in the quarter, which was up 2.3% from a year ago but below the consensus estimate at 510,000. The stock fell 6% on the news.

For the full year, Tesla's vehicle deliveries fell for the first time, declining from 1.81 million to 1.79 million. That slump comes even as the company added the Cybertruck to its lineup at the end of 2023.

Does Tesla have a demand problem?

While investor attention has been focused on the election and autonomy, Tesla's core business seems to be running into a demand problem.

The electric vehicle industry has faced a number of challenges this year as enthusiasm among buyers seems to be waning now that early adopters have already purchased EVs. Sales of hybrids have climbed in their place, and even Musk has complained about the impact of elevated interest rates on vehicle sales, though that is a problem across the auto industry rather than one unique to EVs. Competition from cheaper alternatives from China and elsewhere has also made the EV market more competitive.

Among other complaints is that Tesla hasn't updated existing vehicle models, and the demand challenges are also evidenced by falling prices for used Teslas. While that doesn't show up directly in the company's financials, lower prices for used Teslas could convince some buyers to purchase a used rather than a new Tesla.

Why it could get worse under Trump

The incoming Trump administration is likely to introduce a lot of uncertainty into the stock market and for Tesla stock. While new regulatory policy could give Tesla's autonomy hopes a boost, Trump has also said he intends to get rid of the $7,500 EV tax credit, which will make Teslas more expensive in the U.S.

What it means for Tesla investors

One quarter's delivery numbers aren't enough to indicate that demand is a long-term challenge for Tesla, but it's a clear risk for the stock, especially with its valuation looking inflated after the post-election rally.

Musk has forecast 20% to 30% growth in deliveries for 2025, which would indicate that the current slowdown is temporary, but investors should see that number as a test for its demand rather than a guarantee of growth. Its growth could be helped by the expected launch of the budget-priced Model Q, which is believed to be priced under $30,000.

With Q4 deliveries weak, evidence of demand challenges, cuts to EV credits coming, and a lofty valuation, Tesla faces a number of headwinds heading into 2025.

At this point, its bet on autonomy gives the stock upside potential over the long term, but if the Q4 update is a sign, 2025 could be a rocky year for the stock. At this point, it's not a full-on red flag for investors, but the underwhelming demand is certainly an issue to monitor.

The Q4 financial results will be available at the end of the month. In particular, investors should watch whether weak deliveries led to pricing pressure in the quarter. If Tesla can't demonstrate demand growth, the stock is likely to languish until it accomplishes a true breakthrough in autonomy.

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Jeremy Bowman 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.