Tesla investors are blaming CEO Elon Musk for getting too involved in politics. But Tesla’s troubles may have deeper roots.

Tesla (TSLA) investors are furious with CEO Elon Musk. In their eyes, if he spent more time on business and less on politics, Tesla could be back on track.

“We believe this is a turning point in the Tesla story and that the Tesla Board finally needs to act now and set ground rules for Musk going forward around his political ambitions and actions,” wrote Dan Ives, an analyst at Webush, on Tuesday morning .

He argues that Musk’s latest political move, the formation of the “America Party,” “has gone too far.” But Tesla’s troubles, while linked to Musk, may have deeper roots.

Falling Demand – Why?

A record fourth-quarter delivery report in January seemed to suggest everything was going well for Tesla, but it didn’t tell the whole story.

In 2024, Tesla delivered 1.78 million vehicles, a total lower than the 1.8 million delivered in 2023. This is the first time Tesla’s annual deliveries have declined.

Tesla’s first-quarter report was also weak, and its second-quarter deliveries weren’t much better. Tesla delivered 384,122 vehicles globally in the second quarter, down 13.5% from the same period last year.

Signs of weakness are starting to emerge in Europe, where several auto trade groups are reporting falling sales.

Most recently, Tesla electric vehicle registrations (a proxy for sales) in Europe fell 27.9% in May compared to a year ago, according to the European Automobile Manufacturers Association.

Meanwhile, total electric vehicle registrations in the region, which includes the UK and the European Free Trade Association, rose 25% in May, with overall registrations down 0.6%.

In the US, Cox Automotive estimates US sales at around 132,000 units in the second quarter, down a sharp 19.5% from the same period last year.

Stephanie Valdez Streaty, Cox’s director of industry analysis, told Yahoo Finance that the sales decline reflects “a slowdown driven by increased competition, an aging product line and signs of brand fatigue in the domestic market .  ”

Meanwhile, Tesla’s stock has fallen more than 25%. While the Musk effect and brand fatigue are impossible to ignore, Tesla’s products face stiff competition from GM, Ford, and Hyundai, as well as Volkswagen in Europe. A refreshed Model Y SUV, the company’s best-seller, was expected to boost sales, but that doesn’t seem to be happening.

A big question is the status of Tesla’s affordable electric car, which could open up a huge new customer base. Deutsche Bank analyst Edison Yu said the so-called Model Q, as he calls it, can’t come soon enough.

“Where is the affordable electric vehicle? The low-cost model that Tesla has long promised is still missing, even though consumers now have more than 70 electric vehicle models to choose from — many of them increasingly attractive and competitively priced,” Valdez Streaty said .

The long wait continues. Wall Street is also increasingly concerned about the loss of electric vehicle tax credits and regulatory credits stemming from former President Donald Trump’s “One Great Thing Bill” (BBB).

The loss of the $7,500 consumer tax credit, which expires on September 30, would be a major blow from a demand perspective for electric vehicle makers like Tesla and traditional automakers like GM and Ford.

But the BBB went further and threatened a big moneymaker for Tesla—regulatory credit sales. The BBB reduced the penalties for automakers that fail to meet the EPA’s CAFE miles per gallon targets. As a result, automakers that fail to meet EPA standards will no longer be subject to penalties, eliminating market demand for Tesla’s credits.