Risk Aversion: What Tesla’s Politicisation Can Teach You
On 10 March 2025, Tesla shares plunged 15.5%, closing at $222.15: their sharpest one-day drop in nearly five years. This sell-off followed a staggering 76% year-over-year decline in Tesla’s February sales in Germany, where only 1,429 vehicles were sold across the entire country.
At the heart of this decline? Elon Musk’s public endorsement of Germany’s far-right AfD party during the country’s crucial federal election: a move that politicised the Silicon Valley carmaker’s stock and triggered widespread backlash across the markets and beyond.
The resulting declines in sales and stock value reflected a shift in perception of the EV giant. The brand shifted from being viewed solely as a product to a political symbol, resulting in a textbook example of what we call the Politicisation of Stock.
What is the Politicisation of Stock?
In today’s emotionally charged climate, a company’s market performance depends not just on earnings, but also on political beliefs. While not new, this phenomenon is a rising force in the 2020s, a decade when perception, identity, and values can drive volatility just as powerfully as profit forecasts.
Definition
The phrase ‘Politicisation of Stock’ describes when a company or its leadership becomes publicly linked to political ideology, turning its stock into a divisive symbol. Investor reactions then shift from fundamentals to emotional sentiment, driven purely by personal identity, values, and social alignment.
Perhaps no other topic is as controversial as politics. When a stock becomes Politicised, reputational risk becomes amplified, activating one of the market’s most powerful forces: Risk Aversion.
What is Risk Aversion?
Definition
Risk Aversion is the natural human pull toward certainty. In trading, this instinct is mostly protective. But when echoed across the market, it can become a force that drives mass selloffs.
To recognise when a stock you are interested in is in danger of being part of a sell-off, you must master what this cognitive process means exactly. After all, identifying Risk Aversion may sound easy, but is no simple feat.
A year ago, no-one could have predicted that Tesla, one of the largest stocks in the world, would serve as an example of Risk Aversion after all. So, what happened?
Navigating the market
Opening at $252.54, 10 March 2025 seemed like it was set to be a continuation of Tesla’s trading range at the time, suggesting a typical trading day ahead. There were no major premarket indicators or analyst reports forecasting anything of concern.
Yet, by the time the markets closed, the stock finished the day at $222.15, a 15.4% drop in value driven by intense Risk Aversion. Over $130 billion in value was wiped out in hours.
While markets were under pressure, with the Nasdaq 100 falling nearly 4% and the S&P 500 down 2.7%, Tesla stood apart: its 15.4% drop was nearly three times greater than the tech sector’s average. The second-largest tech decline that day came from Nvidia, which fell 5.1%, followed closely by Apple at 4.9%. No other major tech stock came close.
Politicisation background
But then again, no other stock ‘s leadership had become so deeply embroiled in politics, sparking widespread Risk Aversion.
While Elon Musk had already stepped into US politics as the head of the Department of Government Efficiency under the Trump administration, he also took an unusually public political stance in the German federal elections of 23 February 2025:
• A post on X that ‘only the AfD can save Germany’ on 20 December 2024.
• A livestreamed conversation with AfD chancellor candidate Alice Weidel on 9 January 2025.
• A surprise video appearance at an AfD campaign event in Halle on 25 January 2025.
Commercial consequences
While the EV market in Germany soared by 53.5% in January 2025, following Elon Musk’s first endorsement of the AfD in late December, Tesla’s new vehicle registrations in Germany dropped by 59.5%, down to just 1,277 units from December’s 3,152.
As Elon Musk’s AfD support intensified, in February, Tesla’s German sales plummeted even further: by 76% year-over-year, marking the steepest drop of all time in the company’s history in the market. Only 1,429 vehicles were sold, down from over 7,700 the year before.
Considering how the timing of Tesla’s commercial slump overlaps with Elon Musk’s politicisation, as well as comments by Professor Martin Fassnacht, marketing expert at WHU – Otto Beisheim School of Management, that ‘Musk’s political ambitions have damaged the image of Tesla [in] Germany’, it’s hard to imagine this decline being driven by anything other than Risk Aversion stemming from the stock’s leadership becoming politicised.
Impact on stock
With Germany’s Federal Motor Transport Authority revealing declining Tesla sales figures for the second month in a row on 5 March, just 5 days later, seasoned automotive analyst at UBS, Joseph Spak reduced his:
• Delivery forecast for the Elon Musk-led company from 437,000 to 367,000 for Q1 2025
• Full-year estimate to 1.7 million units, down from 2 million
• Price target for the EV giant’s stock from $259 to $225, while maintaining a ‘Sell’ rating
Spak’s revised report was published before the US markets opened at 9:30 am Eastern Time. Immediately after the market opened, Tesla's stock began declining as Risk Aversion took hold. By 10:17 am ET, shares had fallen by approximately 8.3%, trading around $240. The stock continued to decline throughout the day.
But beyond the numbers, a deeper shift was unfolding: a psychological pivot in the market, driven by none other than Risk Aversion.
Mastering the behaviour
Spak’s revised sales outlook did more than just adjust expectations, it triggered widespread Risk Aversion. For many traders, it sparked a wave of uncertainty and instinctive caution. In that moment, Risk Aversion took control.
What are the elements of Risk Aversion?
Risk Aversion is a deeply human reaction. At its core, it reflects our natural desire to avoid pain and uncertainty.
Risk Aversion is often driven by three core psychological forces:
Loss Aversion: Makes us feel the sting of losses twice as strongly as we enjoy gains, often pushing us to exit too early.
Ambiguity Aversion: The familiar feels safer. This leads us to favour known risks over unknown ones, even when the unknown could offer greater upside.
Regret Aversion: The fear of making a choice we’ll later wish we hadn’t. It’s this anticipated regret that causes hesitation and second-guessing.
Example of Risk Aversion during the Tesla stock drop
When Tesla’s stock began to fall on March 10th, traders reacted to the wider market sentiment around the EV giant’s stock: characterised by uncertainty, reputational damage, and potential regret of holding onto the stock.
Spak’s revised forecast was not the sole cause, but certainly served as the decisive factor. When the report was released, it amplified the already existing underlying sentiment, like:
Loss Aversion
In addition to declining sales in Germany, Tesla saw a sharp drop in its second-largest market, China. In February 2025, sales fell to 30,688 vehicles: down 51.5% from January’s 63,238 and 49.2% year-over-year decrease.
Fearing a deeper decline in the Silicon Valley carmaker’s stock value and driven by heightened Risk Aversion, most of the EV giant’s stock sellers exited within the first hour of the trading day.
Ambiguity Aversion
Elon Musk’s endorsement of Germany’s AfD in December 2024 came as a shock, even for investors familiar with the Politicisation of his image in the US. The move added a layer of uncertainty around Tesla driven by its increased Politicised leadership, which seemed to impact the company’s sales.
The prospect of even further Politicisation created uncertainty and intensified Risk Aversion, with many traders wanting to avoid the fluctuating price moves that now came with owning the Elon Musk-led company’s stock.
Regret Aversion
Noting the plunge in German and Chinese sales, as well as Musk’s Politicisation of his image in Germany and the USA, many stockholders of the Elon Musk-led company hesitated in maintaining their position, fearing they were holding on to a sinking stock. Within the first hour of trading, Tesla’s price dropped 8%, triggering a wave of sell-offs driven less by fundamentals and more by the painful thought and heightened Risk Aversion of, ‘I should have sold earlier.’
Still, this wasn’t the first time example of Risk Aversion induced by the Politicisation of Stock. A similar episode unfolded two years earlier.
RISK AVERSION CASE STUDY: Bud Light and the AB in Bev stock drop (2023)
On 1 April 2023, American beer brand Bud Light launched a brief social media campaign featuring transgender influencer Dylan Mulvaney. The campaign featured a sponsored video on Mulvaney’s Instagram, showcasing a custom Bud Light can with her face on it, and promoting Bud Light’s ‘Easy Carry Contest’.
The Politicisation of Bud Light
What followed was one of the most intense consumer backlashes in recent history. Conservative public figures called for a boycott, framing the partnership as both Politicised and ideologically divisive, with:
Country singer Kid Rock posting a video of himself shooting cases of Bud Light in protest
Country singer Travis Tritt announcing that ‘I will be deleting all Anheuser-Busch products from my tour hospitality rider’
Rock musician Ted Nugent referring to the partnership as ‘the epitome of cultural deprivation’
Bud Light had now become a symbol in a culture war. The brand’s core consumer base, which traditionally involved working-class men in the southern and midwestern US (socially and politically conservative regions) reacted swiftly.
In the week ending 8 April 2023, one week after Mulaney’s Instagram video, Bud Light experienced an 11% drop in sales compared to the same week in 2022. One week later, by 15 April 2023, sales were down 21% year-over-year. A further decline in sales to 23% in the week ending 29 April followed.
Risk Aversion in the case of AB InBev
On 10 May, given declining sales, HSBC downgraded AB InBev's stock from ‘Buy’ to ‘Hold’ in an internal analyst note. Authored by Carlos Laboy, Managing Director at HSBC’s global beverage sector, the analyst cited the ‘Bud Light crisis’ as the main reason. Although not publicly available, various media outlets like CNBC and Fox Business reported Laboy’s note.
At this point, aware of the wider backlash around Bud Light and an impending sell-off, Risk Aversion kicked in AB In Bev’s stockholders. That same day, AB InBev’s stock fell by 0.05%, from $65.94 to $65.91. Although minimal, this was the start off a sell-off that endured throughout the month.
By 31 May, Ab InBev's stock price closed at $53.20, down from $66.39 on 31 March, representing a 20% decrease over two months. This drop marked AB InBev’s worst monthly performance since the COVID-19 pandemic in March 2020, when the company’s stock fell by 23.2% to $41.83 from $54.45.
Difference to Tesla
Bud Light never fully recovered from the 2023 controversy, with its sales and brand perception still significantly damaged. The beer brand lost its status as the # 1 beer in America to Modelo Especial, and has yet to regain it.
Despite the blow to Bud Light, AB InBev’s stock price rebounded by May 2025, trading around $68.35 compared to $66.39 in March 2023. AB InBev offset Bud Light’s losses through stronger performance from other global brands, including Michelob Ultra and Busch Light. After all, Bud Light is just one brand in AB InBev’s portfolio.
Unlike AB InBex, which could rely on a diverse brand portfolio, Tesla’s fate is tied entirely to one name and one perception.
Conquering the cognitive
When Risk Aversion sell-offs kick in, they rarely announce themselves with a siren. They whisper through missed signals.
If you want to spot an approaching Risk Aversion-induced sell-off before it takes place, train your mind to spot these two psychological currents in other traders that often flow beneath the surface:
Belief updating failure
Social proof
What is belief updating failure?
Also known as belief perseverance, this psychological process describes when someone struggles to change their views, even after receiving clear, contradictory evidence.
Instead of adjusting, they cling to what they already ‘know’, sometimes digging in deeper as the facts pile up.
How to identify
You’ll recognise it when asset prices resist reality. Despite mounting red flags (like falling deliveries, Politicisation, or weakening fundamentals), prices will not adjust right away. Not because the news isn’t serious, but because too many traders are still clinging to yesterday’s narrative.
Analysts and trading communities will echo familiar mantras: ‘Tesla always bounces back’, or ‘the market’s overreacting’. These sound bites can offer comfort, but not clarity, and they delay necessary decisions.
Even as the data worsens, sentiment surveys and investor outlooks may stay oddly upbeat. But this optimism isn’t confidence: it’s inertia (the mind resisting change). And when reality finally breaks through, exits aren’t strategic: they’re sudden, emotional, and contagious.
KEY TAKEAWAY
if you notice traders refusing to adapt while risk factors add up, you could be watching Belief Updating Failure play out in real time.
A Risk Aversion inspired sell-off may not be far behind.
What is social proof?
Social proof is our tendency to follow others (especially when uncertain), trusting that the crowd knows best. It feels safe. Once belief updating failure fades and uncertainty begins rising, Risk Averse traders often take comfort in the crowd, watching what others do and treating it as a signal of safety.
This is social proof in action.
How to identify
You’ll often see it begin with sudden, clustered exits. Waves of cautious traders will step back, shifting out of one asset in sync, rebalancing into safe havens like gold. It looks coordinated, but it’s not. It’s collective fear disguised as strategy: social proof in action.
Then come the narratives. Forums fill with familiar phrases: ‘Everyone’s getting out’, or ‘Better safe than sorry’. Analysts echo them, not always out of insight, but instinct. These aren’t data points, they’re emotional cues. And the more they’re repeated, the more traders follow, not out of conviction, but comfort.
Sentiment indicators spike. Tools like the Fear and Greed Index start swinging erratically, jumping from extreme greed to sudden fear. This is not because the asset’s fundamentals have changed overnight, but because emotions have.
KEY TAKEAWAY
if you notice traders refusing to exit the same asset together, echoing emotional narratives while the fundamentals remain steady, you may be seeing social proof in motion.
Winning wisdom wrap up
Tesla’s one-day drop on 10 March 2025 was a market reaction driven by a large, belated psychological shift. The Politicisation of the brand triggered belief updating failure in stockholders. Once the consequences of this Politicisation became too obvious to ignore, Risk Aversion and social proof came together to contribute to the EV giant’s second largest one-day drop of all time.
As a trader, your best chance at making successful moves when you trade shares lies in recognising these psychological factors before they create action, and hit the headlines.
Markets don’t move because of your trades: they move because of everyone else’s. To act wisely, think wider. Step into the psychology of the crowd, and step ahead by staying aware, alert, and grounded in clarity when others aren’t. If you understand the crowd, then you’re better equipped to anticipate what might happen next.
Final thoughts
After its $217 low on 10 March 2025, Tesla stock now appears to have recovered, trading around the area of $340 at the time of writing, up over 57%: an encouraging sign for those looking to trade Tesla.
This recovery aligns with a deliberate shift in the political branding narrative. After the stock’s further Politicisation, including a promotional photoshoot held on the White House’s South Lawn, where President Trump and Elon Musk showcased EV giant’s cars on 11 March as well as Musk’s continued role in the US government, Tesla’s leadership appears to be reversing Politicisation:
Elon Musk remarked at Tesla's Texas Gigafactory on the 20th of March that:
‘If you read the news, it feels like Armageddon. I can't walk past the TV without seeing a Tesla on fire’. This was also accompanied by quotes like ‘... But what I'm here to tell you is that the future is incredibly bright and exciting,’ hinting at a reversal in the Politicisation of his image. Four days later, the Elon Musk-led company’s stock surged approximately 11.93%, closing at $278.39.
On April 22, 2025, during Tesla's quarterly earnings call, Elon Musk announced that, ‘in May, my time allocation to DOGE will drop significantly... I will be allocating far more of my time to Tesla’. The stock rose approximately 5.37% the following day.
On 20 May, during a Bloomberg forum in Doha, Elon Musk announced his intention to significantly reduce the Politicisation of his spending through campaign contributions, stating ‘I think I've done enough’, and that ‘I don’t currently see a reason [to continue political spending]’.
Tesla’s recovery appears to have aligned with this deliberate shift in political narrative. Traders who distanced themselves due to Risk Aversion in March appear to be returning, encouraged by clearer messaging and a perceived refocus on the core business.
But is it enough to fully erase the damage caused by Politicisation? The political scars still lingers. Yet this rebound shows that markets, like people, are willing to forgive when actions align with long-term value.
For now, the Silicon Valley carmaker may be turning the corner on Risk Aversion. Whether it stays the course will depend not just on performance, but on perception. And in today’s market, that’s half the game.
Disclaimer:
Please note that the information provided in this article was accurate at the time of writing. Market conditions and economic data can change rapidly. This content is intended for informational purposes only and should not be used as the sole basis for making financial decisions.
On 10 March 2025, Tesla shares plunged 15.5%, closing at $222.15: their sharpest one-day drop in nearly five years. This sell-off followed a staggering 76% year-over-year decline in Tesla’s February sales in Germany, where only 1,429 vehicles were sold across the entire country.
At the heart of this decline? Elon Musk’s public endorsement of Germany’s far-right AfD party during the country’s crucial federal election: a move that politicised the Silicon Valley carmaker’s stock and triggered widespread backlash across the markets and beyond.
The resulting declines in sales and stock value reflected a shift in perception of the EV giant. The brand shifted from being viewed solely as a product to a political symbol, resulting in a textbook example of what we call the Politicisation of Stock.
