[Post-Tesla] Loyal Investors Turn Away as Cracks Emerge in Tesla’s Overheated Valuation Narrative

Investment Thesis Weakens, High-Valuation Debate Spreads
Sales Decline in Europe and China, Running Counter to Market Growth
Leadership Position Increasingly Vulnerable to External Factors

The investment environment surrounding Tesla, once the unrivaled leader in the electric vehicle market, has begun shifting rapidly. Early investor outflows have emerged as controversies over exaggerated claims about cutting-edge features intersect with the CEO’s political actions, fueling broader doubts about the company’s valuation. The valuation framework that had long been sustained by expectations of future growth is now diverging from actual performance, undermining the underlying investment thesis. At the same time, declining sales in Europe and China and intensifying global competition have compounded uncertainty over whether Tesla can maintain its market dominance.

Criticism of “Reliance on Science-Fiction Promises”

According to the U.S. monthly magazine Wired, a growing number of early Tesla investors have recently been exiting the market, disappointed by what they view as exaggerated marketing around the company’s Full Self-Driving (FSD) technology and by Elon Musk’s increasingly polarized political actions. Investors who once actively promoted Tesla’s strengths as “fans” are now turning into “anti-fans,” raising concerns over technical flaws and Musk’s outspoken remarks. Wired reported that “early investors are now pointing to alternatives such as Rivian, Lucid, or electric vehicles from traditional automakers, even challenging Tesla’s once-dominant position.”

Alongside this shift, questions surrounding Tesla’s valuation methodology have resurfaced within the market. Michael Burry, known as a central figure in The Big Short, wrote on his Substack newsletter platform in December last year that “Tesla’s current market capitalization is absurdly overvalued,” adding that “shareholder value is diluted by 3.6 percent annually as Tesla continues to compensate through stock-based compensation (SBC) without conducting share buybacks.” The argument highlights that valuations driven by growth expectations can diverge materially from actual shareholder returns.

Burry further emphasized that the issue of shareholder dilution could intensify when combined with the massive compensation package for Musk. In November of the same year, Tesla approved a compensation plan at its shareholder meeting that would grant Musk stock worth up to $1 trillion, contingent on achieving a market capitalization of $8.5 trillion. If fully executed, Musk’s ownership stake could rise from approximately 15 percent to as high as 29 percent. Burry argued that such a compensation structure could prioritize executive rewards over the interests of existing shareholders, stating that “it is a serious problem when gains in corporate value are not distributed equally among stakeholders.”

Similar criticisms have repeatedly surfaced within investor communities. A user active on the U.S. online forum Reddit commented that “Tesla sells only a small fraction of the vehicles that Toyota does, yet its market capitalization reflects a company that dominates the entire industry.” The post drew responses such as “all the optimistic projections surrounding Tesla seem to rely on science-fiction promises.” These reactions suggest that valuations built around a technology-driven narrative are entering a phase of direct conflict with performance-based assessments.

Limits of the High-End EV Strategy

Weakness in Tesla’s core electric vehicle business has added weight to these critical evaluations. Last year, Tesla delivered a total of 1,636,129 vehicles globally, representing an 8.6 percent decline from 1,789,226 units in 2024. Sales declines were confirmed across most major markets, including Europe and China, with Tesla moving in the opposite direction even as competing brands gained traction. As a company that had previously sustained rapid growth records an unusual contraction, the market’s evaluation framework has begun to shift. There is a growing perception that Tesla’s touted technological differentiation has not materialized, while its actual sales base has shown clear signs of weakening.

The contraction in Tesla’s presence in the European market has reinforced this perception. Annual registrations in Europe fell from approximately 326,000 units in 2024 to 235,000 units last year, a decline of 27.8 percent. By country, Germany saw registrations drop from around 37,000 units to 19,000 units, a decline of 48.4 percent, while France recorded a 37.5 percent decrease after changes to the “bonus écologique” subsidy criteria excluded China-produced Model 3 vehicles. Sweden and Belgium also experienced declines of 66.9 percent and 53.1 percent, respectively, reflecting the combined effects of policy changes and weakening demand.

Although some countries recorded increases, these cases are not interpreted as evidence of a fundamental recovery trend. In Norway, Tesla registrations rose from approximately 24,000 units in 2024 to about 34,000 units in 2025, an increase of 41.3 percent, but a significant portion of the demand was concentrated in the final two months of the year. This pattern is attributed to front-loaded demand ahead of policy changes that will adjust tax benefits for high-priced electric vehicles starting in 2026. As a result, the increase is viewed as a temporary pull-forward effect, raising the likelihood of a subsequent demand gap.

A similar pattern has unfolded in the Chinese market. In October last year, Tesla’s sales in China fell to 26,006 units, the lowest level in three years. This sharp decline followed a 63 percent surge in sales driven by demand for the Model Y in the previous month. During this period, local manufacturers such as BYD continued strengthening competitiveness with more features and lower prices, while extended-range electric vehicles (EREVs), which combine batteries with generators, gained traction by alleviating concerns over driving range. These dynamics have placed Tesla, which remains focused on a pure battery electric vehicle strategy, under increasing pressure.

Warning Signs for Market Leadership

As growth momentum weakens, Tesla’s position as a leading electric vehicle manufacturer has become increasingly vulnerable to external factors. Last year, China’s BYD sold approximately 2.26 million battery electric vehicles worldwide, surpassing Tesla, which sold around 1.63 million units, by more than 600,000 units. While Tesla recorded a decline of more than 8 percent year over year, BYD achieved 28 percent growth driven by expansion in Europe and Southeast Asia. The narrowing gap between the leader and its challengers has evolved into a reversal of rankings, signaling a broader shift in market leadership.

These changes are also reflected in regional market strategies. Chinese manufacturers have begun exploring ways to use Canada as a gateway into the North American market in response to high U.S. tariff barriers. In line with this, the Canadian government has agreed to reduce tariffs on Chinese electric vehicles from 100 percent to around 6 percent, enabling companies such as BYD and Geely to establish pathways into North America through local assembly or joint ventures. This approach effectively circumvents traditional supply chain barriers and is increasingly viewed as a direct source of pressure on Tesla’s long-established dominance in the North American market. As regional barriers weaken, the competitive landscape itself is being reshaped.

Additional headwinds have emerged from potential policy changes in the United States, including the elimination of the $7,500 electric vehicle tax credit and adjustments to emissions regulations. Musk acknowledged the likelihood of near-term performance pressure, stating that “we will probably have a few tough quarters.” As both operational performance and policy conditions deteriorate, Tesla’s stock has also weakened. After reaching a peak of $498.83 on December 22 last year, Tesla shares have steadily declined, falling below $400 this month and closing at $395.56 on the 16th.