Tesla’s stock retreated sharply, erasing most of the gains from the Trump-led surge. BYD’s partnership with DeepSeek to develop its autonomous vehicle poses the biggest threat to Tesla’s competitiveness.
Telsa’s stock is down 17% this year and slumped 33% from its all-time high in December last year, making it the biggest loser among the US tech giants, or so-called Magnificent Seven stocks.
The drop in its share price is attributed to several factors including a broad retreat in the US tech stocks, Elon Musk’s leadership in acquiring OpenAI, and the recent BYD’s announcement to partner with DeepSeek. Meanwhile, optimism toward Trump’s support for Tesla’s self-driving ambitions has also faded.
The biggest threat – BYD’s growing markets
On Monday, BYD, the largest Chinese electric car brand, announced that it would partner with DeepSeek to develop its autonomous technology. The news unsettled Tesla’s shareholders, as well as those of other Chinese car makers such as Xpeng and Nio, triggering a sharp selloff in their stocks.
Tesla’s shares slumped more than 6% on Tuesday, despite a slight rebound the following day. In contrast, BYD’s shares surged to a new high on that day.
Tesla’s primary concern is its competitiveness in the full self-driving (FSD) market against BYD. DeepSeek’s artificial intelligence (AI) model is regarded as a pivotal advancement in the US-China tech race.
The Chinese startup’s R1 model has been shown to be just as effective, if not slightly better, than those developed by leading US tech firms, particularly OpenAI’s ChatGPT. However, DeepSeek spent only $600 million developing its AI model, compared to the billions of dollars invested by US hyperscalers.
Autonomous vehicles, particularly Robotaxis, are central to Tesla’s strategy for business growth. At present, Tesla’s FSD vehicles require human supervision while driving, and the company is awaiting approval for public road use in China.
BYD’s adoption of DeepSeek’s R1 AI model, known as the DiPilot system, has the potential to rival Tesla’s FSD technology at a lower cost. In the fourth quarter of 2024, Tesla missed market expectations in both deliveries and earnings, making it even more crucial to accelerate its autonomous driving project.
Concerns about Elon Musk’s distraction from core business
Also on Monday, reports emerged that Tesla CEO Elon Musk is leading a group of investors to acquire OpenAI for $97.4 billion (€93.68 billion). OpenAI, the developer of ChatGPT, currently holds the most advanced Large Language Model (LLM) for generative AI technology. However, the organisation remains a non-profit one, despite CEO Sam Altman’s attempts to take the company public.
Musk also owns SpaceX, xAI, and the social media platform X (formerly Twitter), which he acquired more than two years ago. Additionally, he serves as a “special government employee” of the White House, assisting former President Donald Trump in launching a cost-cutting initiative.
These developments have raised concerns that the world’s richest man may be distracted by his many ventures.
The Trump trade fades
Tesla was one of the biggest beneficiaries of the Trump Trade following the election, with its shares nearly doubling at a peak on 18 December. However, the stock has since erased most of those gains this year. The decline has also been driven by a broader pullback in US technology stocks, most likely due to profit-taking and the impact of the DeepSeek announcement.
The US technology sector has been the biggest loser in the S&P 500, while Chinese tech companies have seen their shares soar since the launch of an inexpensive AI model by a Chinese startup.
