Tesla (TSLA) has faced a slew of recent challenges that have pressured its once soaring stock price. Foremost among these challenges is the stark decline in its core automotive business. After years of robust growth, Tesla’s vehicle deliveries have hit a downturn. For instance, in the first quarter of 2025, Tesla delivered 336,681 vehicles, marking a 13% drop compared to the previous year.

This trend continued into the second quarter, during which Tesla delivered 384,122 vehicles, representing a 13.5% year-over-year decline. Despite meeting market expectations, these figures highlight a concerning trend of declining sales momentum.

Adding to these woes are CEO Elon Musk’s political entanglements, which have further weighed on Tesla’s stock performance. His affiliations and controversies, particularly with President Donald Trump’s administration, have sown uncertainty and negatively impacted investor sentiment and Tesla’s brand image.

Compounding matters, a sweeping tax-and-spending bill passed by the Senate this week and backed by Trump would eliminate federal EV tax credits after Sept. 30. That’s a direct hit to Tesla, whose U.S. sales have benefited heavily from those incentives. If the bill becomes law as expected, it could dampen EV demand just as competition from legacy automakers and new entrants is intensifying.

Tesla’s premium valuation, long supported by high growth rates, disruptive technology, and Musk’s personal brand, is looking increasingly difficult to defend. TSLA stock is trading at a forward price-earnings multiple of 217.1x, which is significantly high. With delivery numbers falling, political controversies weighing on the company’s public image, and evaporating federal support, the rationale for Tesla’s stock trading at multiples far above its automotive peers is starting to erode.

Against these challenges, is Tesla stock set for a significant correction?

What’s Ahead for Tesla Stock?

Its once-dominant automotive business is now showing signs of strain, with slowing delivery growth and declining profit margins. Despite these challenges, many investors continue to hold faith in Tesla’s long-term vision, betting not just on cars, but on technology-driven transformation.

A glimpse of that future recently appeared in Austin, Texas, where Tesla rolled out an early version of its driverless taxi service. While the pilot marks a notable milestone, the service remains heavily restricted, underscoring that full-scale autonomy remains a distant reality. Nonetheless, it's a strategic step in Tesla’s broader transition toward becoming more of a tech innovator than just an EV manufacturer.

Tesla is redefining its identity as a technology powerhouse, with automation and artificial intelligence (AI) at its core. Its Full Self-Driving (FSD) software continues to evolve, and projects like the Optimus humanoid robot suggest Tesla is eyeing markets well outside transportation. With plans for commercial deployment of Optimus as early as 2026, Tesla is targeting sectors where labor costs are high and automation can offer efficiency gains.

These bets, however, are anything but low-risk. They demand significant investment, face complex regulatory scrutiny, and rely on the public’s willingness to embrace emerging technologies. The FSD software, for example, still lacks broad regulatory approval, and mass adoption of Robotaxi or humanoid robots is far from guaranteed.

Despite these uncertainties, investor sentiment toward Tesla remains ambitious. The stock often defies gravity, staging sharp rallies even in the face of negative headlines. Yet this volatility cuts both ways, and with questions swirling around execution, regulatory headwinds, and Elon Musk’s leadership focus, caution is warranted.

Analysts are sidelined on Tesla stock, maintaining a “Hold” consensus rating. Meanwhile, analysts’ average price target of $297.31 reflects about 6% downside potential. Further, the lowest price target for Tesla stock is $115, implying 64% downside potential from current levels.

The Bottom Line on Tesla Stock

Given the current landscape, investors should exercise caution when considering Tesla stock. Rather than diving in now, it may make sense to wait for firmer signs of a turnaround, which would indicate improving vehicle deliveries, regaining market share, and stabilizing profit margins. While Tesla’s long-term vision remains compelling, the road ahead is far from smooth for now.