Tesla Stock Plummets: Geopolitical Risks and the Impact of "America First" Policies

Tesla Stock Plummets: Geopolitical Risks and the Impact of "America First" PoliciesOn Tuesday, Tesla's stock price plunged over 8%, pushing its market capitalization below $1 trillion and marking its lowest point since November 7, 2024 (two days after the US presidential election victory of Donald Trump). This dramatic drop nearly wiped out all post-election gains, resulting in a cumulative 25% decline year-to-date, significantly outpacing the Nasdaq's 1

Tesla Stock Plummets: Geopolitical Risks and the Impact of "America First" Policies

On Tuesday, Tesla's stock price plunged over 8%, pushing its market capitalization below $1 trillion and marking its lowest point since November 7, 2024 (two days after the US presidential election victory of Donald Trump). This dramatic drop nearly wiped out all post-election gains, resulting in a cumulative 25% decline year-to-date, significantly outpacing the Nasdaq's 1.5% drop over the same period. Since reaching its all-time high closing price on December 16th of the previous year, Tesla's stock has fallen over 35%. Concurrently, CEO Elon Musk's personal wealth shrunk by over $100 billion, although his net worth remains around $380 billion, solidifying his position as the world's richest person.

The immediate trigger for Tesla's stock plunge was Monday's media reports detailing setbacks in the upgrade of its autonomous driving system in China. Many Chinese users reported that the "City Street Navigation" feature fell far short of Musk's previously promised full self-driving capabilities and carried a hefty price tag of 64,000 RMB. In contrast, other Chinese electric vehicle manufacturers, like BYD, offer comparable autonomous driving systems either for free or at significantly lower prices. Xiaomi's SU7 even includes similar technology as a standard, free feature across its entire lineup. These negative reports from China exacerbated Tesla shareholders' concerns, which were partly related to the company's performance and partly linked to Musk's personal political activities.

Musk is currently heavily involved in politics, heading up President Trump's newly established "Department of Government Efficiency" (DOGE). He and his Washington team have gained access to government computer systems and taxpayer data, with President Trump authorizing him to push for massive layoffs within government agencies that regulate businesses. Musk's extreme political rhetoric and aggressive actions have triggered protests from opponents in various markets, including demonstrations at Tesla stores and service centers.

Earlier this month, Tesla's stock also experienced a downturn following Trump's announcement of broad tariffs on goods from Canada, Mexico, and China. Simultaneously, Tesla saw a decline in European vehicle registrations during January and February. In Q4 2024, Tesla missed analyst expectations for both earnings and sales, with automotive revenue declining 8% year-over-year and operating profit plummeting by 23%. The end-of-January financial report revealed that lower average selling prices for older models (including Model 3, Model Y, Model S, and Model X) were a major factor in the revenue slump. According to the California New Car Dealers Association, Tesla's sales in California, once its largest US market, decreased by 11.6% in Q4 2024.

Despite the current stock price being 35% down from its peak, it remains approximately 20% higher than its pre-Trump election win level. This is primarily due to a 15% surge in the stock price the day after the election. Musk was a major supporter of President Trump's campaign, donating $290 million to Republican candidates in 2024, largely to support Trump's return to the White House.

Tesla's stock collapse is viewed as an ominous portent of the dangers facing multinational corporations a sign that this is just the beginning of a nightmare. For decades, multinationals operated under the assumption that they could transcend national borders, enter free markets, serve global customers, and remain largely unaffected by geopolitical tensions. However, President Trump's return to the White House shattered this notion.

Multinationals have historically strategized under the assumption that market access was driven by consumer demand and regulatory compliance. However, this assumption is being replaced by a new reality political alignment and "home country" factors are becoming crucial determinants of corporate success or failure.

This shift isn't solely driven by Trump's policies, but his "America First" economic policies characterized by tariff threats, economic coercion, and protectionist measures have undoubtedly placed American companies at the center of global tensions, provoking varied international responses: increased regulatory scrutiny, consumer boycotts, and reputational risk for American brands. Beyond boycotts, there is a strengthening of nationalistic sentiment supporting domestic industries.

Trump's re-election continued the "America First" agenda, threatening tariffs as high as 60% on Chinese goods. These actions have not only exacerbated tensions with China but also further strained relations with key allies, including Canada, Mexico, and the European Union. American companies are now increasingly viewed globally as extensions of US foreign policy, making them vulnerable to backlash.

The consequences are already apparent. In China, anti-American sentiment is rising. According to Counterpoint Research, Apple, once dominant in the Chinese smartphone market, saw its market share drop to 15% in Q3 2024, while Huawei captured 19%. Apple's latest financial report showed an 11.1% decline in Chinese sales, the largest drop since the same period last year. Starbucks faces a similar struggle, losing market share to local competitor Luckin Coffee, which successfully attracted consumers with lower prices, faster service, and localized flavors.

Tesla, once a leading foreign electric vehicle brand in China, witnessed a 22% year-over-year sales decline, while BYD has taken the lead in the domestic market. While many companies are still fighting to maintain their share in the Chinese market, the competitiveness of domestic brands has significantly strengthened.

Tesla exemplifies the challenges facing multinationals in this new landscape. Escalating US-China trade tensions have stalled Tesla's planned regulatory approvals for its autonomous driving technology in China. Musk himself has highlighted this predicament: because China doesn't allow Tesla to transfer training data abroad, and the US prohibits data processing in China, this regulatory stalemate severely impacts Tesla's progress in rolling out Full Self-Driving (FSD) technology in China.

China was once Tesla's most profitable foreign market, but its reliance on the Chinese market has become a liability. While the Shanghai Gigafactory fueled Tesla's expansion, it has also strengthened the market power of Chinese electric vehicle competitors. BYD now holds a 35% share of the Chinese EV market, compared to Tesla's 7%. This underscores the immense challenges that geopolitical risks pose to multinational corporations. With the intensifying struggle between globalization and nationalist forces, multinationals will face an increasingly complex operating environment. Tesla's stock plunge may be just a harbinger of more such events to come.