Experts warn Tesla faces long road to brand recovery

Tesla investors breathed a sigh of relief after CEO Elon Musk said he would refocus his attention on the electric carmaker, but that promise did not entirely dispel the worry that his right-wing shift had irrevocably damaged the company’s brand.

The carmaker’s shares rose nearly 8% on Wednesday after Musk said he would cut back his work for US President Donald Trump to a day or two a week from sometime next month after Tesla posted a 71% slump in net income and a sharp drop in automotive revenue.

The billionaire’s work as an adviser to Trump and his embrace of right-wing politics in Europe have drawn widespread opposition, including protests and vandalism at Tesla showrooms.

“His time is very valuable, and I think Tesla needs his attention,” said Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management and a prominent investor.

“But it doesn’t change that people don’t want the Tesla brand. I don’t know how you fix that.”

Shares of the world’s most valuable carmaker have lost about half their value since hitting a record high in December, reducing the company’s market capitalisation by more than $500bn, largely on concerns that brand damage could hurt sales for a second consecutive year.

It is set to add more than $50bn to its $766bn market valuation, if gains hold. Tesla shares were trading about 89 times profit expectations, much higher than carmakers Ford Motor, General Motors and Magnificent Seven peers.

While some investors welcomed Musk committing more time to Tesla, experts warned the brand faces a long road to recovery, especially as political controversy weighs on its image.

“Musk could do a reversal on his political career and dedicate 100% of his time to Tesla, but the rot has set in,” said Sue Benson, CEO and founder of The Behaviours Agency, a marketing firm.

“No product can fix this, and no amount of time spent in Tesla’s offices will undo the new perception many people have of Musk — in fact, it could make things worse as it’s far too late to separate the man from the machine.”

Musk’s support of Trump and affiliation to right-wing causes have alienated a segment of consumers who once aligned with Tesla’s climate-focused mission.

Some analysts have suggested that if the adoption of EVs in more conservative states accelerates, it could offset falling sales in California and other markets.

Brand perception issues have become more pressing for Tesla, which is entering a phase where consumer appeal and affordability are essential for its next stage of growth.

The company reaffirmed plans to launch an affordable model in early 2025, but warned the production ramp could be slower than expected.

Tesla said it would review its full-year delivery forecast amid shifting global trade policies in the second-quarter earnings update, which is expected in July.

While Tesla is less likely to be affected by global tariffs than legacy carmakers, it still expects an outsize impact on the fast-growing energy storage business that uses battery cells from China.

Musk said he had advocated for lower tariffs but the final decision lay with Trump. “I expect this year there will probably be some unexpected bumps this year,” he said.

“Negative impact of vandalism and unwarranted hostility towards our brand and our people had an impact in certain markets,” Tesla finance chief Vaibhav Taneja said.

Tesla also said that “changing political sentiment could have a meaningful impact on demand for our products in the near-term”.

“Until the brand distances itself from the political baggage it has acquired, Musk’s specific percentage of renewed focus on Tesla may be irrelevant,” said Gabor Schreier, chief creative officer at Saffron Brand Consultants.

Reuters