Tesla (US:TLSA), the leading electric vehicle company, has been defying economic gravity for a long time. In December last year, amidst the general euphoric sentiment, Tesla’ share price soared to a high of $480. Its market cap peaked at a fabulous $1.5 trillion.
Just a decade ago, Tesla’s stock price (post-split) was trading in the teens. Many early Tesla shareholders who held through the ups and downs of the company reaped immense riches.
But unfortunately, all these returns are firmly in the rear-view mirror. Since hitting those peaks three months ago, Tesla’s stock has plunged by nearly 50 percent. Prices slumped to $221 this week (10 March). The pullback here is the sharpest and deepest among the trillion-dollar clubs (eg, NVDA, AAPL, MSFT). The post-Trump election gains were fully erased.
What are the reasons for this serious selling? Market-wise, most tech stocks are seeing a swift consolidation. Investor sentiment, once extremely bullish a short while back, appears in need of a consolidation. Tesla can not escape this general market retreat.
Moreover, the radical transformation of the geopolitical landscape has unsettled the stock market. Investors are slowly adopting a ‘wait-and-see’ strategy to deal with unexpected policies.
One company-specific bearish factor that is weighing on Tesla’s stock is cratering sales. In Europe, for example, despite a growth in the overall EV sales Tesla is experiencing a deep contraction (double-digit decline). This is really concerning since the company is valued like a high-growth tech stock. If sales are falling sharply in one of its largest markets, where will growth (and profits) come from?
In sum, investors are fleeing Tesla due to these concerning factors.
Is Tesla still a long-term growth story?
One of the reasons for Tesla’s lofty share price valuation is its growth. It is, after all, a hyper growth stock that is benefitting from a transformation of the auto industry. Even the late Charlie Munger, the legendary investor, admired Tesla and praised that it is “a minor miracle” that the car company survived its early tumultuous days and spearheaded the EV revolution.
In 2024, the company’s Tesla Y was the world’s best selling model. Tesla sold more than a million vehicle of this model to customers (see below). Worldwide, Tesla retailed 1.79 million cars worldwide. So, until recently, Tesla was seen as an innovative company on the right side of the green revolution.
The problem is for investors is that Tesla is no longer the small and niche company that it was once was. Tesla’s recent peak market cap of $1.5 trillion is vast relative to its sales, which totalled only $98 billion last year (ie, 15x sales). Versus Tesla’a most recent annual profit of $17 billion, the market is pricing a P-E ratio in excess of 88x. This is really a elevated valuation.
What goes up, they say, must come down. Indeed. Even if Tesla maintains its long-term growth, it will be far harder for it to achieve the fantastic sales increase in percentage terms like it did in the past. There’s a limit of how much Tesla can growth in absolute terms.
This is especially true when many other car manufacturers are fast catching up. BYD, Tesla’s main EV competitor, is popular in many markets. And it is only valued at $136 billion.
Furthermore, whether Tesla’s senior management can brush aside the growing backlash against the brand remains an open question (you can read all about this in a recent Rolling Stone article.)
From AI to self-driving features to user experience, Tesla is starting to lag behind. Even Steven Wozniak, the co-founder of Apple Inc (AAPL), recently commented that “every step up, where Tesla changed a thing in the car, it got worse and worse and worse. And now it is just miserable for user interface.”
All in all, Tesla could still be a growth company but the global auto market will become far more competitive in the future.
Source: VisualCapitalist.com (Marc 2025)
Is Tesla a buy today?
After a deep correction, will Tesla surprise the market on the upside?
Hard to say, due to the above-mentioned reasons. The two biggest questions that investors are asking now: One, will US tech stocks continue to outperform the general market? And two, will Tesla be part of its elite tech growth?
If Tesla is viewed as a normal auto stock, its stock price will correct further. To understand this, let’s do a simple comparison. Toyota, the world’s largest auto manufacturer by sales, sold more than 8 million vehicles and brought in $300 billion in revenue last year. Yet its market cap is only $250 billion. Using Toyota’s valuation metric, how much should Tesla be worth? I think a lot less than its current $844 billion in market cap.
Thus the biggest risk for Tesla is that its exceptionality fades and investors value it like a traditional auto manufacturer.
While it is true that the stock generated huge returns for shareholders in the past, this would be hard to repeat after a 10-20x capital growth, especially problems are mounting for the car company.
Yes, the stock could be a buy today due to its oversold technicals and potential support (drawn at $250 and $200). But we are just looking at it from the view of ‘trading buys’ rather than a long-term investment thesis.
And bear in mind that when a trend is firmly in motion, like Tesla’s current downtrend, it tends to last a while until all sellers have sold.
Tesla share price forecasts
As Tesla’s fundamentals reveal falling sales growth, how is the Wall Street taking it?
For a substantial majority, they are still affirming Tesla’s price target (see below). Only a few are putting ‘Underweight’ ratings on the auto stock.
But stock prices often run ahead of these forecasts. Tesla’s current falling price levels are reflecting investors’ expectations of its medium-term earnings, which are far less favourable than these price forecasts. Therefore, we would not be surprised to see a trim of these price targets later on should Tesla’s stock continue to struggle.
Source: Yahoo Finance
Jackson is a core part of the editorial team at GoodMoneyGuide.com.
With over 15 years industry experience as a financial analyst, he brings a wealth of knowledge and expertise to our content and readers.
Previously Jackson was the director of Stockcube Research as Head of Investors Intelligence. This pivotal role involved providing market timing advice and research to some of the world’s largest institutions and hedge funds.
Jackson brings a huge amount of expertise in areas as diverse as global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University and has authored nearly 200 articles for GoodMoneyGuide.com.
You can contact Jackson at jackson@goodmoneyguide.com
