Tesla stock slumps over 3% to sink below $400: what happened?

Shares of Tesla TSLA continued to decline Tuesday, falling below the $400 mark as investors reassessed the company’s pricing strategy and broader growth outlook.

The stock dropped 3.5% to around $395.25 in early trading, extending Monday’s 2.9% decline and marking a sharp reversal from Tesla’s recent rally tied to optimism around autonomous driving and expansion in China.

The latest weakness follows Tesla’s surprise decision to raise prices on higher-end versions of its best-selling Model Y crossover.

The company increased prices by between $500 and $1,000 for premium all-wheel-drive configurations, pushing some trims closer to the $50,000 level.

Base versions of the Model Y remained unchanged, with starting prices around $40,000 to $42,000.

The move appears aimed at improving profitability after Tesla’s automotive gross margin rebounded to roughly 21% in the first quarter, up from approximately 14% a year earlier.

However, investors questioned the timing of the increase as the broader US electric vehicle market weakens following the expiration of the federal $7,500 EV tax credit.

Total US EV sales reportedly fell 27% in the first quarter, forcing many automakers to cut prices aggressively to sustain demand.

Average EV transaction prices have also declined as competition intensifies across the sector.

Despite the broader slowdown, the Model Y remains the best-selling electric vehicle in the United States and accounts for roughly 36% of all EV sales nationally.

Investors still focused on AI and Robotaxis

While Tesla’s core automotive business remains under pressure, investor attention continues to center on the company’s artificial intelligence ambitions.

Analysts increasingly view Tesla’s long-term valuation as tied less to vehicle deliveries and more to “physical AI” initiatives such as autonomous driving, robotaxis, and humanoid robotics.

Barclays reiterated its Equal Weight rating on Tesla and said investor focus remains on “core growth initiatives,” including robotaxi scaling, Full Self-Driving expansion, and the eventual launch of Optimus V3.

Barclays analyst Dan Levy said the market is particularly focused on whether Tesla can expand fully driverless robotaxi operations without human safety monitors.

The bank also suggested Tesla may be attempting to offset rising component costs, including higher prices for memory and copper.

Tesla’s robotaxi rollout has become a central issue for investors this year.

Although the company launched services in Austin and later expanded into additional US cities, progress has been slower than many shareholders anticipated.

That slower rollout has raised concerns around scalability and the timeline for generating meaningful revenue from autonomous driving services.

China remains a key variable

Tesla’s recent stock weakness also reflects disappointment following last week’s summit between US President Donald Trump and Chinese President Xi Jinping.

Investors had hoped the meeting — which included Tesla CEO Elon Musk as part of the US delegation — would help accelerate regulatory approval for Tesla’s Full Self-Driving software in China.

No major trade or investment announcements emerged from the summit, weighing on sentiment and interrupting Tesla’s momentum.

China remains one of Tesla’s most important markets globally and a critical part of its long-term strategy for monetizing autonomous driving software.

Approval for Full Self-Driving in China could open a significant recurring revenue stream for Tesla, particularly given the company’s growing subscription base in the United States.