(Reuters) -Tesla's quarterly sales plunged 13% to the weakest in nearly three years, hurt by a backlash against CEO Elon Musk's politics, rising global competition, and people waiting for a refresh to its highest-selling electric vehicle Model Y.

The stumbling sales indicate that the one-time leading brand is reeling from the fallout of the company delaying launches for years, and Musk's foray into politics in the United States and Europe.

Tesla shares fell 2% in early trading on Wednesday. But they reversed course to trade up more than 5% after Politico reported that Musk was planning to step down from his role as an advisor to U.S. President Donald Trump soon, as administration insiders increasingly view the billionaire as a political liability.

"Exactly what the stock needed," said Stock Trader Network Chief Strategist Dennis Dick, who has a position in the stock, referring to the report. "Shareholders are hoping Musk will now have the time to focus on rebuilding the Tesla brand."

Musk's role in spearheading federal cost-cutting in the United States and support of far-right parties in Germany and other nations, have produced a sharp response across the world.

Protests have spiked, and Tesla cars and dealerships globally have become targets for vandalism. Some Tesla owners have been looking to disassociate themselves from Musk and data has shown many are trading in their vehicles.

On Tuesday, a left-leaning judge won a seat on the state of Wisconsin's highest court even after Musk spent more than $20 million backing her opponent in the race that led to protests from residents declaring that democracy was "not for sale." 

Tesla posted weak sales in numerous European markets and in China, even as consumers continued to opt for EVs.

In the January-March period, the company globally recorded a bigger-than-expected drop in sales to 336,681 vehicles, down from 386,810 units a year ago.

The expectation was for a 3.7% drop to 372,410 vehicles delivered, according to an average estimate of 15 analysts from Visible Alpha - but in recent days analysts had braced for even worse figures, following Tesla's first-ever annual sales decline in 2024.

"The brand crisis issues are clearly having a negative impact on Tesla ... there is no debate," Tesla bull Dan Ives, an analyst at Wedbush Securities, said in a note, adding the delivery numbers "were a disaster."

The company has lost about 45% of its value since mid-December. That follows a record high after Trump's election win when investors expected Musk's close ties to the White House to ease regulatory pressure over its self-driving taxi program.

Y REFRESH

Last year, Musk forecast 20% to 30% sales growth in 2025, promising to launch an affordable vehicle in the first half of the year and banking on demand for its newest vehicle, the Cybertruck.

While little is known about the progress on rolling out the cheaper vehicle, demand for the pricey Cybertruck - with its polarizing design and quality concerns - has been weak.

Musk did not reiterate the growth forecast on the January earnings call, saying Tesla would return to growth this year.

Tesla began offering the refreshed Model Y SUV with a new look and updated features in China late February, and in the U.S. and Europe last month. Investors are waiting to see if demand for that can counter competition from Chinese rivals including BYD.

Tesla said on Wednesday that retooling production lines for the refresh across all four of its factories led to the loss of several weeks of production during the quarter.

After enjoying a leading position among EV makers for years, Tesla is set to be unseated by BYD for the first time this year with a 15.7% market share, ahead of Tesla's 15.3%, according to Counterpoint Research.

"I'm skeptical about demand for the new Model Y from a couple of perspectives, even though there's still a fair amount of growth for electric vehicles, the market is slowing down," said Thomas Martin, senior portfolio manager at Tesla investor Globalt Investments.

Tesla's sales in key European markets fell again in March, with numbers dropping for a third straight month in France and Sweden.

(Reporting by Akash Sriram in Bengaluru and Abhirup Roy in San Francisco; Editing by Sayantani Ghosh, Arun Koyyur, Chizu Nomiyama and Shinjini Ganguli)