A £10,000 investment in Tesla (NASDAQ:TSLA) one month ago would now be worth a little more than £9,190. This reflects an 8.1% decline as shares hover near two-month lows, but also a small appreciation of the pound.
Though still 43% above its November 2024 levels, Tesla has shed 30% from its December peak of $488.54, pulled down by leadership distractions, policy headwinds, and doubts over its sky-high valuation. For a company of its size, such volatility is unusual.
The slide explained
Tesla’s recent slump stems from a cocktail of self-inflicted and external pressures. CEO Elon Musk’s $97.4bn bid for OpenAI and his role leading the Trump administration’s Department of Government Efficiency (DOGE) have raised concerns about divided focus. Consumer favourability for Musk has cratered to 3% in January 2025, down from 33% in 2018, according to Morning Consult data.
Moreover, political risks also is a real concern. The Trump administration canceled a $5bn electric vehicle (EV) charging infrastructure programme, while new steel/aluminum tariffs threaten Tesla’s China-dependent supply chain.
Additionally, competition is intensifying, too, as BYD’s new $9,600 EV with self-driving tech undercuts Tesla’s pricing power. Tesla’s Q4 2024 earnings missed profit and revenue targets. Analysts have since trimmed 2025 revenue forecasts by 5% to $116.8bn. Insider selling — including a $20m stock dump by Musk’s brother Kimbal — has further rattled confidence.
Despite its size, Tesla trades more like a speculative growth stock. Shares plummeted 21% since Trump’s Inauguration Day (20 January 2025) and 6.3% on 11 February alone, events typically shrugged off by giants like Apple or Microsoft. With a beta of 2.1, Tesla remains twice as volatile as the S&P 500. This is likely a reflection of its dependence on Musk’s reputation and binary bets on futuristic tech.
Valuation vertigo versus tech superpower promise
Tesla’s financial metrics simply don’t comply to traditional norms for a company that makes cars. Its trailing price-to-earnings (P/E) ratio stands at 139.1 times, a staggering 820% premium to the sector median of 15.1 times. Even more eye-popping is its forward price-to-earnings-to-growth (PEG) ratio of 7.98, implying investors pay nearly $8 for every $1 of expected earnings growth — 409% above peers. By comparison, traditional sector leaders like Toyota trade with PEG ratios below 1.5.
Tesla’s huge valuation hinges on two unproven technologies: robotaxis and humanoid robots. A limited robotaxi pilot launches in Austin this June, but BYD’s DiPilot (God’s Eye) system — which is already deployed in China’s $9,600 EVs — threatens to gain an advantage on self-driving tech before Tesla scales. Meanwhile, Musk’s Optimus robots remain somewhat elusive with no clear commercialisation timeline.
As such, Tesla is a Rorschach test for investors. Bulls see a buying opportunity in the panic, while bears point to unsustainable valuations, Musk’s divided attention, and rising competition. Personally, I hope the Tesla succeeds, but I can’t back the stock with the current valuation. There is far too much execution risk with the stock at current levels, and detached from sector norms.
