Tesla Eyes Affordable EV to Offset Sharp Revenue Decline

Shares slip as Tesla’s quarterly sales tumble and political ties cloud future growth

Tesla's Revenue Drops 12% – Worst Decline in Over a Decade

Tesla has reported a 12% year-on-year drop in revenue for Q2 2025, marking its steepest quarterly decline in more than ten years. Sales for the quarter reached $22.5 billion, missing analyst expectations despite heavy discounts and attractive financing.

The electric vehicle giant is now banking on a new, more affordable model to revive demand amid growing competition and political fallout.

Key Factors Behind Tesla's Struggles

The company’s downturn has been linked to several challenges:

• Weakened consumer sentiment: Particularly in Europe due to CEO Elon Musk’s political involvement.
• Increased competition: Budget-friendly electric vehicles from rivals are gaining ground.
• Trade war exposure: Tesla remains vulnerable to US-China trade tensions and potential subsidy losses.
• Backlash from political alignment: Musk’s previous role in the Trump administration continues to draw criticism globally.

Shares Under Pressure

Tesla shares remain 18% down year-to-date, significantly underperforming rival EV stocks. The sluggish recovery reflects investor concerns over:

• Consecutive quarterly sales declines.
• The risk of losing billions in government subsidies due to strained White House relations.
• Limited appeal of current Tesla models compared to new market entrants.

New Budget Model in the Works

Tesla has confirmed the start of limited production on a lower-cost model, aimed at addressing affordability concerns and expanding market reach. While details remain scarce, full production is expected to ramp up in the second half of the year.

Vehicle Deliveries and Missed Targets

In the second quarter:

• Deliveries dropped to 384,122 vehicles, down 13.5% from the same period last year.
• Sales fell for the second straight quarter, partly due to the Model Y refresh.
• Analysts were also left disappointed by muted updates on the Robotaxi programme.

Robotaxi Update Falls Short

Despite a recent trial launch in Texas, Tesla has not provided a regulatory update on wider expansion of its Robotaxi service, including plans for California. Reports suggest Nevada may be next, but safety concerns persist after early footage revealed operational flaws.

Political Fallout Continues to Bite

Elon Musk's political controversies are proving costly:

• Federal subsidies threatened: Sky News analysis estimates a potential loss of billions in regulatory credits.
• Global protests: Anti-Tesla demonstrations have erupted across several countries.
• Subsidies already down: Tesla’s income from regulatory credits slipped to $435 million, down from $458 million in Q1.

Investor Outlook

• Short-term: Expect continued volatility until the affordable model launches and political tensions ease.
• Medium-term: Tesla’s new strategy may improve market penetration if the budget model succeeds.
• Long-term: Sustainability will depend on stabilising international perception and reducing dependency on subsidies.

Final Thoughts

Tesla’s bid to reverse its revenue slump with a cheaper EV model could be a strategic win—but only if the company navigates political headwinds and tightens its focus on innovation and customer trust. Investors should remain cautious, especially as competition in the EV space continues to intensify.

Sources: (SKY.com, Reuters.com)