Tesla’s (TSLA) stock has dropped by nearly half in three months. Even so, investors are still debating whether Elon Musk’s electric-vehicle maker remains overpriced.
The company’s market capitalization has dropped 45% since hitting an all-time high of $1.5 trillion on December 17, erasing most of the gains the stock made after CEO Musk helped finance the election victory of U.S. President Donald Trump.
And yet Tesla continues to fetch a valuation far above those of the world’s biggest automotive and technology firms, judging by standard financial metrics. That’s because most investors and analysts have bought Musk’s pitch that the world’s most-valuable automaker isn’t really a car company at all, but rather an artificial-intelligence pioneer that will soon unleash a revolution in robotaxis and humanoid robots.
Tesla’s electric-vehicle business accounts for almost all of its revenue but less than a quarter of its stock-market value, according to a Reuters review of more than a dozen analyses by banks and investment firms. The bulk of its worth rests on hopes for autonomous vehicles Tesla hasn’t yet delivered, despite Musk’s promises in every year since 2016 that driverless Teslas would arrive no later than the following year.
The stock’s decline since December stems from falling vehicle sales and profits; protests of Musk’s political activity, including his mass firings of U.S. government workers as a senior Trump advisor; and investor worries that politics are distracting the world’s richest man from tending to his cash cow. Still, Tesla’s market capitalization remains up about $65 billion since the election – an amount higher than the entire value of General Motors (GM).
Tesla’s total worth of $845 billion still tops the next nine most-valuable major automakers combined, which collectively sold about 44 million cars last year, compared to Tesla’s 1.8 million.
Investors have long bet on Musk’s visions of Tesla’s tomorrow rather than its profits today. But the widening gap between its real-world performance and analysts’ earnings estimates for unborn products has prompted some to warn of irrational exuberance.
“For how much longer can the stock remain divorced from the fundamentals?” JP Morgan analyst Ryan Brinkman wrote in January, after Tesla reported poor earnings and its first-ever annual vehicle-sales decline.
Tesla and Musk did not respond to requests for comment. In July, Musk said investors who don’t believe Tesla would “solve vehicle autonomy” should “sell their Tesla stock.”
The pivot was persuasive: Tesla shares jumped 71% from last year’s low in April through the November election, even as its EV sales stalled and profits fell.
Then the stock nearly doubled in the weeks after Trump’s election. Musk spent more than $250 million supporting Trump and now serves as his top advisor on slashing government staff and regulations.
Musk’s political clout has convinced bullish analysts that Trump will clear regulatory roadblocks to deploying a vast fleet of Tesla robotaxis. Tesla, however, already faces little oversight from many U.S. states, which control most autonomous-vehicle regulation. Texas, where Musk promises to launch fare-collecting robotaxis by June, has barred cities from regulating them.
“There’s absolutely nothing stopping him from releasing this self-driving technology right now,” said Gordon Johnson, chief executive of investment-advisory firm GLJ Research, which recommends shorting Tesla’s stock. The tech isn’t road-ready, Johnson argues: “If he released it tomorrow, the jig would be up. These things would be wrecking across America.”
Tesla has faced lawsuits and federal investigations into accidents, including fatalities, involving the driver-assistance systems it has marketed as Autopilot and Full Self-Driving. The company warns consumers the systems don’t make its cars autonomous and require drivers to pay strict attention. Musk has long said Tesla’s technology will soon be safer than a human driver.
Falling sales, rising competition
The automaker’s core EV business is struggling. The only vehicle Tesla has launched since the 2020 Model Y is the Cybertruck. The triangular pickup had sales of 38,965 units last year, Cox Automotive estimates, well below the 250,000 that Musk initially predicted Tesla would produce by 2025. Tesla has also cut prices on the now-aging models 3 and Y amid slowing electric-vehicle demand globally and rising competition, especially in China, where EVs start below $10,000.
New data also show sharp Tesla-sales declines this year in European markets following Musk’s embrace of far-right political movements there.
Tesla now faces headwinds from the president Musk helped elect. Trump, a frequent EV critic, has called for scrapping EV subsidies and policies that have added billions of dollars to Tesla’s bottom line. Musk has dismissed the impact on Tesla of losing subsidies, saying rivals would suffer more.
When Tesla reported a 20% drop in annual operating profit in January, analysts on the earnings call asked no questions about Tesla’s financials or falling EV sales. They focused instead on Musk’s promises of “autonomous ride-hailing” in Austin, Texas, by June and a wider driverless-vehicle launch by year-end. Tesla shares rose 3% the next day.
Tesla still trades at huge premiums, as measured by forward price-to-earnings ratios. The measure is used by investors to judge whether stocks are fairly valued. A high ratio suggests shares might be overpriced.
Tesla’s forward PE ratio is more than nine times the average of the next 25 most-valuable automakers. It’s quadruple that of BYD (BYDDY, BYDDF), the Chinese automaker that passed Tesla last year as the world’s top EV seller.
Tesla’s forward PE ratio also is more than double or triple those of tech giants Nvidia, Apple, Meta Platforms, Alphabet, Amazon.com and Microsoft — the other six high-flying stocks, along with Tesla, known as the Magnificent Seven.
Optimistic models
Bulls discount standard financial metrics for judging Tesla’s potential, arguing Musk is singularly capable of leading a transportation revolution. He has said robotaxis and robots will make Tesla the “most valuable company in the world by far.”
Brian Mulberry, client-portfolio manager at Tesla investor Zacks Investment Management, said Musk “always pulls off the technology,” despite long-running concerns about his “mad-scientist personality.”
Most analyst models reviewed by Reuters remain bullish.
Such models typically justify Tesla’s market value by breaking it into several categories: Its auto business, including services such as EV charging (now 90% of revenue); its energy-generation and storage business (10% of revenue); and three embryonic businesses: robotaxis; licensing or subscriptions for self-driving technology; and Optimus humanoid robots. Three such models in January rated EV sales as a relatively minor factor in Tesla’s expected growth.
