Tesla's stock took a hit on Friday, sliding approximately 3.7% as market participants digested the lack of progress on securing Chinese regulatory approval for the company's Full Self-Driving (FSD) technology. The decline came after President Donald Trump concluded his summit in Beijing without any significant trade breakthroughs, leaving U.S. executives, including Elon Musk, with little clarity on the regulatory front.
FSD: The Heart of Tesla's Valuation
Full Self-Driving is central to Tesla's narrative that it is more than just an electric vehicle manufacturer. The feature allows the car to handle most driving tasks but still requires driver supervision—Tesla emphasizes that the vehicle is not fully autonomous. Approval in China, the world's largest automotive market, is critical for Tesla to expand its FSD rollout and justify its premium valuation.
Summit Outcomes Disappoint
According to Reuters, major U.S. business leaders like Elon Musk wrapped up the summit with little clarity on concrete results. Analysts noted that the trip appeared more as a goodwill gesture than a push for quick deals. Feng Chucheng of Hutong Research commented, "Beijing never approaches a leadership summit of this sort from a purely transactional perspective. I wouldn't use the size of deals to measure the outcome of the summit."
Han Shen Lin of The Asia Group was more blunt, stating, "The summit has much more on positive atmospherics than deliverables," and warned that without tangible achievements, tensions between Washington and Beijing could quickly escalate again.
Market Sentiment Reflects Uncertainty
Prediction markets also reflected a cautious outlook. On Polymarket, the odds of a U.S.-China tariff agreement by May 31 stood at just 31%, with $57,614 in trading volume, underscoring the challenging policy landscape Tesla must navigate in China.
Capital Expenditure and Investment Thesis
Compounding the regulatory headwinds, Tesla recently raised its 2026 capital expenditure target above $25 billion as Elon Musk pours resources into artificial intelligence, robotaxis, and humanoid robots. Morningstar analyst Seth Goldstein noted that the entire investment thesis hinges on whether investors trust Musk to deliver "seemingly impossible things" as viable businesses.
China Sales Up, but Challenges Remain
Despite the setback, Tesla's China-made EV sales jumped 36% in April compared to the previous year, marking the sixth consecutive monthly increase. However, analysts warn that cheaper local competitors and the delay in FSD approval could limit further gains.
European Expansion and Regulatory Milestones
In Europe, Tesla announced plans to invest an additional $250 million in battery-cell operations at its Berlin-area plant, aiming to boost annual capacity from 8 GWh to 18 GWh and increase battery production headcount to over 1,500. However, approval and scaling may lag behind Musk's ambitions.
On the regulatory front, the U.S. National Highway Traffic Safety Administration (NHTSA) approved the 2026 Model Y as the first to clear its updated driver-assistance system tests. Still, Tesla faces open investigations, including one examining FSD's performance in low-visibility conditions.
Robotaxi Rollout Faces Hurdles
Reuters reported that Tesla's robotaxi operations in Texas have been spotty, with delays, cancellations, and odd drop-offs. In Austin, only about 50 Tesla vehicles are operating, a fraction of Alphabet's Waymo, which runs over 250 in the city.
Friday's selloff underscores investor disappointment that the summit yielded no concrete progress on FSD approval in China. While Tesla retains the market's attention, the lack of regulatory clarity remains a significant overhang on the stock.
