Tesla faces a situation in which the impact of politics on consumer behavior is increasingly visible. Ideological positioning and corporate decisions, combined, have directly affected the brand’s customer loyalty, creating an unusual situation in the automotive sector. The biggest consequence of this is the brand’s reputation, which was previously an undisputed synonym for innovation.
Tesla could collapse after Musk’s political endorsement
Tesla TSLA.O for years had more repeat U.S. customers than any other major automotive brand but its loyalty has plunged since CEO Elon Musk endorsed President Donald Trump last summer, according to data from research firm S&P Global Mobility shared exclusively with Reuters. The data, which has not been previously reported, shows Tesla’s customer loyalty peaked in June 2024, when 73% of Tesla-owning households in the market for a new car bought another Tesla, according to an S&P analysis of vehicle-registration data in all 50 states.
That industry-leading brand loyalty rate started to nosedive in July, that data showed, when Musk endorsed Trump following an assassination attempt in Pennsylvania on the Republican nominee. The rate bottomed out at 49.9% last March, just below the industry average, after Musk launched Trump’s budget-slashing Department of Government Efficiency in January and started firing thousands of government workers.
Tesla’s U.S. loyalty rate has since ticked back up to 57.4% in May, the most recent month the S&P data is available, putting it back above the industry average and about the same as Toyota 7203.T but behind Chevrolet GM.N and Ford F.N. S&P analyst Tom Libby called it “unprecedented” to see the runaway leader in customer loyalty fall so quickly to industry-average levels. “I’ve never seen this rapid of a decline in such a short period of time,” he said. Tesla and Musk did not respond to requests for comment.
Image damage may have worsened the crisis
The timing of Tesla’s plunging brand loyalty suggests the CEO’s involvement in politics turned off customers in the EV pioneer’s eco-conscious customer base, some analysts said. “If they have Democratic leanings, then perhaps they consider other brands in addition to Tesla,” said Seth Goldstein, an analyst at Morningstar.
Tesla’s aging model lineup also faces stiffer competition from an array of EVs from legacy automakers including General Motors GM.N, Hyundai 005380.KS and BMW BMWG.DE. The only new model Tesla has released since 2020, its triangular Cybertruck, has proved a flop despite Musk’s prediction of hundreds of thousands of annual sales.
Beyond Musk’s political involvement, Tesla’s lack of product innovation has opened the door for competitors to gain ground. Tesla’s lack of impactful launches and the poor performance of its most recent offerings don’t match the many options offered by its competitors, with visually appealing electric cars boasting autonomy.
Public criticism fuels performance decline
On an April earnings call, Tesla CFO Vaibhav Taneja singled out “the negative impact of vandalism and unwarranted hostility towards our brand and people,” but also said there were “several weeks of lost production” when the company retooled factories to produce a refreshed version of its top-selling Model Y.
Some internal factors have also hampered Tesla’s current momentum. The brand has experienced significant production disruptions, reducing its dealership presence during this period of intense competition.
How will Tesla win back its audience?
Tesla has been subjected to acts of vandalism, and even its employees have faced hostility. The company’s situation is more than just a business issue; it’s a social one. The coming months could be decisive for the brand to regain its reputation and solid customer base. The company may need to go beyond new models, but also understand how to restore its image as a benchmark for innovation while managing its political impact on consumers.