In the realm of electric vehicles, Tesla once stood as a beacon of innovation and disruption, with Elon Musk enjoying almost unblemished trust from investors and consumers alike. Yet, the faith of some of its most ardent supporters has begun to wane. Ross Gerber, an early investor and the CEO of Gerber Kawasaki Wealth & Investment Management, embodies this shift in sentiment. This once-glowing belief in Tesla's future has now turned into a deep concern.

Gerber's unease is palpable as he publicly criticizes the company’s trajectory. In an unexpected move, he slashed his Tesla holdings by 31% in 2024, leaving him with 262,000 shares worth approximately $106 million at the end of last year. His predictions are stark; by 2025, he foresees a potential plunge in Tesla's stock price by over 50%. This speculation seems to be grounded in reality, particularly as the stock has already seen a nearly 11% dip from the start of 2025.

In an interview with Business Insider on the 22nd, Gerber outlined four fundamental reasons behind his bearish outlook on Tesla. Each of these reasons reveals a layer of vulnerability that he believes could lead Tesla into a severe crisis: challenges with autonomous driving technology, Elon Musk’s divided attention, a slowdown in sales growth, and a troubling high valuation.

Challenges in Autonomous Driving Technology: A Major Setback

Gerber emphasizes the belief that Tesla’s autonomous driving ambitions are fundamentally flawed. In a bold critique, he argues that Musk's aspirations to launch a fully autonomous taxi network in Austin this June are overly ambitious and unlikely to materialize. Unlike competitors such as Waymo, Tesla relies entirely on cameras for its self-driving technology, eschewing the use of LIDAR sensors, which Gerber contends is crucial for ensuring safety and reliability.

He asserts, "We are seriously lagging behind in the autonomous taxi and driving arena," pointing out that Waymo's approach is decidedly more secure. In his view, the absence of LIDAR presents an insurmountable obstacle for Tesla's full autonomy goals. "I now believe that to have a sufficiently safe fully autonomous driving system, LIDAR is necessary. Unless they change their hardware, they will hit a power ceiling," he stated emphatically.

Musk’s Divided Attention: The Shift to AI

Another factor weighing heavily on Gerber's mind is Elon Musk's divided focus among his several ventures, including SpaceX and xAI. This spread of attention, he argues, detracts significantly from Tesla's potential. In recent months, Musk seems to have redirected much of his energy towards artificial intelligence, leaving Tesla's priorities vulnerable.

Gerber notes, "He (Musk) is putting 100% of his energy into AI, which actually harms Tesla more than it benefits xAI and other businesses because he is no longer working on Tesla." Gerber believes that if Musk were to dedicate himself solely to the advancement of Tesla’s autonomous driving technology, it would bolster his confidence in the company’s prospects.

Sales Growth Slowing: Increasing Competition and Brand Damage

Though investors have high hopes for Tesla's advancements in self-driving technology and robotics, the company finds itself facing core challenges of declining growth in sales—a striking contradiction to the company's innovative image. The year 2024 marks an ominous first for Tesla, as electric vehicle sales are set to witness an annual drop.

Gerber warns that the increasing competition from other electric vehicle brands poses substantial threats, particularly outside the United States. Data released by the German Automotive Industry Association underscored the rapid decline in Tesla's registration figures in Germany, plummeting by 60% in January alone. Comparable downturns have also been noted in France and Norway, where sales decreased by 63% and 38%, respectively. This competitive environment compels Gerber to reevaluate Tesla's standing.

High Valuation: The Unsustainable Premium

For a considerable time now, Tesla's market valuation has occupied a lofty perch above other automotive and tech titans. Yet, Gerber warns that if Tesla's car sales continue to weaken, this previously well-received premium could rapidly deflate. With a staggering market capitalization of $1.1 trillion—almost five times that of Toyota—Tesla's profit margins paint a less rosy picture, accounting for merely 20% of Toyota's earnings from the previous year.

He draws attention to alarming metrics, stating that Tesla’s price-to-earnings ratio stands at an astronomical 125. This figure starkly contrasts with any other mainstream stocks associated with the 'Magnificent 7' tech giants, indicating a potential vulnerability that Gerber sharply addresses. "For me, the issue is that I hold $100 million worth of Tesla stock at a P/E ratio of 125, which is far from normal for any of the established Mag 7 stocks," he explains. "Thus, Tesla's susceptibility lies in the fact that if conditions worsen this year, its stock price might plunge by 50%."

Wall Street analysts appear to resonate with Gerber's concerns. Institutions like JPMorgan share his pessimistic outlook following Tesla’s latest earnings report. While initial market reactions suggested investor enthusiasm—leading to a brief uptick in stock value—JPMorgan remains steadfast in its stance, maintaining a price target of $135 for Tesla shares. This projection suggests an alarming potential drop of up to 60% from current levels, further dampening the optimistic tone circulating in the market.