Tesla, like many other American manufacturers, is in a tough spot due to the trade war initiated by President Donald Trump.

However, unlike most other companies, Tesla faces an additional “side problem” – the close relationship between CEO Elon Musk and Trump, to the point where Musk is sometimes jokingly called the President’s “Number 1 Best Friend.”

This week, Tesla will release its financial results and Elon Musk will answer questions from investors. But things are far from simple – Musk is facing a true dilemma: If he continues to maintain close ties with Trump, Tesla could alienate many potential customers both domestically and abroad – especially those who do not support Trump’s policies. On the other hand, if Musk deliberately distances himself from Trump, there’s a significant risk of being “targeted” by the White House.

This is a predicament that Musk has put himself in.

The past quarter saw Tesla’s biggest sales decline after a long period of near-continuous double-digit growth. Yet financial troubles are just one of many concerns investors want addressed.

Investors will be especially interested in finding out how much damage the 25% import tariff imposed by Trump’s administration on all imported vehicles is causing Tesla, and what Elon Musk thinks about this policy.

Another major question is when Musk will step down from his role at the Department of Government Efficiency (DOGE) in Washington to focus on resolving Tesla’s ongoing issues.

Investors are also waiting for concrete progress on projects like self-driving cars, the Robotaxi fleet, a new, more affordable Tesla model, and plans to commercialize humanoid robots.

If Musk can deliver reassuring answers on any of these points, it could help reverse the downward spiral that has seen Tesla’s stock lose half its value since mid-December – and partially restore confidence in the company.

Dan Ives, an analyst at Wedbush Securities and a long-time Tesla supporter who recently slashed his price target for the stock, said Musk is facing a “red alert” situation if he continues to play a prominent role in Trump’s administration.

Believing brand image issues are behind the sales slump, Ives wrote in a client note on Sunday: “Musk needs to step away from government, leave DOGE, and return to being Tesla’s full-time CEO.”

Beyond the backlash surrounding Musk himself, Tesla also faces intensifying competition from other EV makers, especially in China. Any further negative news in these areas could send the stock tumbling again.

“It’s turned into a nightmare for Tesla and investors,” Ives told CNN. “Tariffs, DOGE controversy, brand damage – it’s a perfect storm.”

A DILEMMA

In some respects, Tesla is less affected than other automakers by Trump’s car tariffs. The company doesn’t import cars from its overseas factories, and Teslas made in the US use fewer foreign components than rivals. Meanwhile, most major automakers sell at least some imported models at US dealerships.

Tesla has stopped taking new orders in China for its two premium models, the Model S and Model X – both made in California – after China slapped retaliatory tariffs of up to 125%. However, these models make up only a small fraction of Tesla’s global sales.

Even so, Musk has insisted that the costs Tesla must bear are “not insignificant.”

“It’s important to note that Tesla is NOT immune in this situation. The impact of tariffs on Tesla is still significant,” he wrote on X, just a day after Trump’s auto tariff plan was announced.

However, if Musk criticizes the tariff policy too harshly at the upcoming investor meeting, he risks damaging his close “friendship” with Trump. Musk became Trump’s largest financial backer last year, and since the inauguration, he has been one of the President’s closest advisers.

Tesla’s stock nearly doubled in value in the two months after the election, as some investors and analysts expected Elon Musk would influence President Trump to push for policies favorable to Tesla – especially in the self-driving car sector.

However, strong support for Trump’s tariff policies could anger both the Chinese government and consumers. China is currently the world’s largest car market, as well as the largest electric vehicle market.

But local consumers are increasingly turning to domestic competitors, most notably BYD. In 2024, Tesla generated $20.9 billion in revenue in China, accounting for about 21% of total revenue – making it the company’s second-largest market after the US.

Dan Ives believes China is “the key to Tesla’s future success or failure.” He warns: “A backlash from China over Trump’s tariff policy and Musk’s ties could have serious – and not to be underestimated – repercussions.”

When will Musk leave DOGE?

Protests outside Tesla showrooms and acts of vandalism at some company facilities highlight the negative reaction the company and its CEO are facing. Some of the most frequently asked questions from investors on Tesla’s website revolve around this issue.

One question, supported by over 1,000 investors, reads:

“Has Tesla seen any significant changes in order rates in Q1 due to rumors about brand damage?”

Another popular question:

“How does the company plan to address the impact of Elon’s partnership with the current administration?”

And a more direct one:

“Boycotts, protests, vandalism, negative headlines, and the plunging stock price all stem from Elon Musk’s involvement in changes to US public service and government staffing. Is Tesla’s Board considering having its CEO focus entirely on Tesla and leave politics to the elected officials?”

Last month, when Elon Musk held an all-hands meeting at Tesla, the event helped the stock recover for a week after a bruising stretch. However, this rebound quickly faded. So far this year, Tesla’s market cap has evaporated by about $800 billion.

On April 2, when Tesla reported its largest year-over-year quarterly sales drop ever, the stock plummeted until Politico reported that Musk was about to step down from his government role. The news immediately sent the stock soaring again. However, Musk and several administration officials denied the report, calling it inaccurate.

Ryan Brinkman, an analyst at JPMorgan Chase, wrote in a client note earlier this month:

“Tesla’s Q1 sales and production report leads us to believe – if anything – we may have underestimated the degree of consumer reaction.”

Tesla did not comment when asked about sales or the impact of Elon Musk’s political role on business.

BIG PROMISES, LITTLE ACTION

Musk has made bold promises: building a fully self-driving robotaxi fleet and developing humanoid robots, claiming these would make Tesla the world’s most valuable company.

He also announced plans to launch a self-driving ride-hailing service in Austin, Texas, in June. Yet so far, there have been no updates on this plan.

Meanwhile, Uber and Waymo (Google’s self-driving unit) have already launched a combined robotaxi service in the very same city.

Dan Ives commented: “If Musk keeps delaying the robotaxi plan, it will be a major blow to the stock. We need to hear positive news on this front, because there’s nothing bright in the rest of this year’s financial outlook.”