Tesla (NASDAQ: TSLA) investors received good news in the company's earnings call for the first quarter of 2025.
CEO Elon Musk, who had spent significant amounts of time working for the government's Department of Government Efficiency (DOGE), announced that he would be spending less time managing DOGE and more time leading Tesla starting in May.
Tesla stock recovered following that news. Still, it sells at a discount of over 45% from its high in December. The question now is whether Musk's return will reduce the heat on Tesla and guide the company toward a recovery. Let's take a closer look.
The state of Tesla
Few can question that Musk's tenure at DOGE has not done favors for Tesla stock. Not only was Musk spending less time managing the company, but his work made him a polarizing topic for some of his customer base, which had previously warmed to Tesla for its success in the electric vehicle market.
That may have had a significant effect on sales. In the first quarter of 2025, total deliveries fell to just under 337,000 compared to 387,000 in the year-ago quarter.
Moreover, Musk runs other operations such as SpaceX, xAI, and The Boring Company, so it's understandable that Tesla shareholders felt he had neglected Tesla by spending so much time in Washington.
Many investors see Tesla as an artificial intelligence company rather than an automaker. So its robotaxi and autonomous driving platforms could become a huge revenue source in the coming years if the predictions of Cathie Wood of Ark Invest and other Tesla bulls come to fruition.
Not surprisingly, upon Musk's announcement, the stock has shown signs of recovery and has risen since the announcement.
Tesla's beleaguered financials
However, Musk will first have to turn around the company's performance, which has undoubtedly lagged amid lower automobile sales. In Q1, revenue of just under $19 billion was down 9% year over year. While revenue rose for energy generation and services, the 21% decline in automobile sales weighed on the financials.
Additionally, operating expenses rose by 9%. The company ramped up research and development costs, presumably to foster the development of its robotaxi and autonomous driving platform. That spending could boost revenue in the long term, but for now, it has strained its financials.
Despite these burdens, Tesla earned $409 million in net income attributable to shareholders, but that was far below the $1.4 billion earned in the year-ago quarter.
Improvements may also come slowly. Analysts forecast a 6% revenue decline in Q2 but believe it will begin to turn positive in Q3.
Also, even with such declines, Tesla is far from being a value stock. Falling profits have taken its P/E ratio to 140, and a forward P/E ratio of 133 points to overvaluation. Nonetheless, the current price-to-sales (P/S) ratio of 9 is below the five-year average of 13, which could lead investors back to Tesla stock as Musk spends more time at the company.
Will Musk's return boost Tesla stock?
Given the state of the company, Musk's return should help boost Tesla's stock.
Musk's time at DOGE has deeply hurt Tesla's shareholders. A perception that he was not focused on Tesla's growth, coupled with the hate directed at the company, brought about a massive sell-off.
Now, with Musk spending more time at the company, the focus on his government and political activities should abate, which may improve Tesla's image. Musk can also address the falling sales and work on advancements that should reengage customers and foster its technical advancements.
An elevated forward P/E ratio does not make the stock seem cheap and may lead investors to question how long it might take for the stock to return to all-time highs.
But the lower car sales have hurt profitability, significantly raising the earnings multiple. Also, the relatively low P/S ratio could help address any valuation concerns, increasing the likelihood of a stock price recovery.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
