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Back in 2015, Volkswagen (VWAGY) was engulfed in one of the biggest scandals in automotive history: “Dieselgate.” The revelation that millions of its “clean diesel” vehicles were equipped with emissions-cheating software shattered consumer trust, cost the company billions, and nearly toppled the German automaker. At the same time, Tesla (TSLA) was on the rise, positioning itself as the authentic clean-energy alternative. Nearly a decade later, however, the tables have turned in dramatic fashion.
This year, Tesla has suffered a symbolic blow: Volkswagen has overtaken the EV pioneer in Europe, outselling Tesla and regaining ground once thought lost forever. What makes this moment especially striking is the irony. Tesla, once elevated by Volkswagen’s “Dieselgate” misstep, is now facing its own reputational and operational headwinds, what some are calling an “EVgate.”
With that, the question for investors is clear: as Tesla faces its own “EVgate” moment, how should you play TSLA stock? Let’s find out.
About Tesla Stock
Tesla is a prominent innovator dedicated to accelerating the global transition to sustainable energy. The Elon Musk-led powerhouse designs, develops, manufactures, leases, and sells high-performance fully electric vehicles, solar energy generation systems, and energy storage products. It also offers maintenance, installation, operation, charging, insurance, financial, and various other services related to its products. In addition, the company is increasingly focusing on products and services centered around AI, robotics, and automation. TSLA has a market cap of $1.13 trillion.
Shares of the EV maker have slipped 15% on a year-to-date basis.
Volkswagen’s EVs Overtake Tesla in Europe a Decade After Dieselgate
I bet the intriguing word “Dieselgate” caught your attention, and you’re curious about what it means. Well, let’s take a moment to dive back into history to understand it and uncover its connections to Volkswagen today. Ten years ago, Volkswagen faced a downward spiral that put the storied automaker’s very survival at risk. In September 2015, the “clean diesel” narrative VW had promoted to consumers for years was exposed as a lie. The automaker had installed software in millions of cars to cheat on tailpipe emissions tests, sparking a rebuke from the U.S. government and a corporate reckoning that cost it 32 billion euros ($37.2 billion) in fines, legal fees, and recall expenses. Not to mention the blow to Volkswagen’s reputation. The scandal became known as “Dieselgate.”
To restore its green credentials after Dieselgate, Volkswagen made an aggressive shift toward electric vehicles. In March 2021, Volkswagen announced its goal to surpass Tesla in global EV sales by 2025. While that sounded ambitious, the path wasn’t straightforward. Volkswagen’s early EV models stumbled due to buggy software and waning consumer interest in EVs, especially in Europe. The company was also late in bringing competitive EVs to the Chinese market. In addition, U.S. buyers have never shown much enthusiasm for the company’s EVs.
While Volkswagen was struggling, Tesla emerged as a rising star in Europe. From 2021 to 2023, Tesla experienced tremendous growth in the European market. In the first half of 2023, the brand’s market share was over five times higher than it was in 2019. In 2023, Tesla dominated many European markets, with the Model Y becoming the region’s top-selling passenger car. However, in 2024, the landscape began to shift as competition intensified from established European automakers and emerging Chinese EV brands. Last year, Volkswagen Group rolled out 30 new or updated models across its brands, including EVs such as VW ID.7 Tourer, long-wheelbase VW ID. Buzz, Audi Q6 e-tron, and Porsche Macan Electric. And it’s not stopping there, with plans to launch the same number of new cars this year.
Just as Volkswagen was gaining ground, Tesla seemed to face its own version of “Dieselgate” — or perhaps more fittingly, “EVgate.” Much like Volkswagen a decade ago, Tesla’s brand has taken a major reputational hit, especially in Europe. The damage stemmed from CEO Elon Musk’s controversial political moves. More precisely, Musk’s support of right-wing candidates in Europe sparked significant consumer backlash. In July, Tesla’s new car registrations in Britain and Germany, Europe’s largest auto markets, fell by more than half compared to a year earlier, deepening the EV maker’s prolonged slump in the region. In August, Tesla sought to strengthen its market share in the U.K. and Europe by providing leasing firms with discounts of up to 40%. The discounts will be offered to customers through lower monthly payment plans.
Meanwhile, Volkswagen’s vehicle sales rose in the second quarter, fueled by a 38% year-over-year increase in global EV deliveries. VW’s refreshed ID lineup, including a hatchback, an SUV crossover, and a full-size sedan, has earned praise for its upgraded interiors and improved software. In Europe, its latest EVs have outpaced Tesla’s sales in recent months, putting the group on track to become the region’s leading EV maker in 2025, ahead of Tesla, Stellantis (STLA), and Renault (RNLSY).
Tesla Faces Even More Challenges Ahead
While Tesla’s struggles in Europe may no longer come as a surprise, the real concern lies in the impact of President Donald Trump’s recently signed “Big Beautiful Bill” on the EV maker. During the Q2 earnings call, CEO Musk warned that Tesla faces tough times ahead as EV incentives phase out in the U.S. The warning came just as the company reported its steepest revenue decline in at least a decade and its core automotive business continued to struggle.
With that, here are two key changes introduced by the “Big Beautiful Bill” that are expected to significantly affect Tesla’s top and bottom lines:
- The biggest change is the elimination of the federal tax credit for EV purchases, effective Sept. 30. The initiative has been a major driver in boosting Tesla’s U.S. sales. As the EV tax credit expires, Tesla could soon be selling vehicles at effectively higher prices for consumers, which threatens to sharply reduce demand and, in turn, sales. Still, Tesla could cut prices to help offset the loss of tax subsidies, but doing so would weigh on its unit gross profits, since average vehicle selling prices would need to fall significantly to make up for the missing EV tax credit. With that, no matter how Tesla responds, the loss of EV tax credits poses a major headwind for the company.
- Another key change is the termination of penalty enforcement for automakers with lower average fuel economy. I discussed this in detail in my latest article on TSLA. In short, Tesla and other EV makers in the U.S. are losing a notable source of income — revenue from regulatory credit sales — because automakers, particularly those producing more gas-guzzling vehicles and fewer EVs, no longer need to purchase credits after the Trump administration officially scrapped noncompliance penalties. The key point is that regulatory credit revenue flows directly to the bottom line, and without that cushion, Tesla will need to rely much more on its core business performance to generate profits.
What Do Analysts Expect for TSLA Stock?
Wall Street analysts remain split on Tesla, with the stock carrying a consensus rating of “Hold.” While 12 analysts rate the stock a “Strong Buy” and two a “Moderate Buy,” 18 suggest holding, and 10 give a “Strong Sell” rating. Bulls take confidence in Musk’s promises around artificial intelligence, robotics, and self-driving technology, while bears point to the company’s deteriorating fundamentals and damaged brand image. TSLA stock currently trades above its average price target of $299.28.
The Bottom Line on TSLA Stock
To sum up, I’m maintaining my “Hold” rating, which I reiterated after the Q2 report, a decision that time has proven right (as I came very close to downgrading it to “Sell” due to the unexpected weakness in the energy business). As I mentioned earlier, Tesla’s struggles in Europe are no longer surprising, and more importantly, I believe the negatives tied to its declining market share in the region are already priced in. A different story is the looming expiration of the EV tax credit and the drying up of regulatory credit revenue.
You may be surprised, but the expiration of the EV tax credit actually brings some short-term benefits for TSLA and other automakers. That’s because it pulls a large portion of demand into the current quarter, which I believe will provide short-term support for TSLA stock. Essentially, I believe it will buy enough time to see how the launch of the new affordable model, expected in the fourth quarter, and the robotaxi expansion unfold, with the latter playing an important role in the company’s valuation.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
