Tesla (NASDAQ:TSLA) stock is down 17% over a fortnight. As such, a £10,000 investment then would be worth just £8,300 today. Investors who thought they were picking up a bargain then were engaging in a challenging investment activity: trying to catch a falling knife. The stock’s decline is attributed to a combination of weak global sales, leadership concerns, and analyst downgrades. Additionally, broader market volatility and Tesla’s fundamental challenges, such as declining deliveries and increased competition, have further eroded investor confidence. While some remain optimistic about the company’s long-term potential, as reflected by brief rallies, the current trend suggests caution is warranted.
Musk is losing fans
Tesla’s stock has faced a steep selloff since Elon Musk’s move to Washington, D.C., to assume a key role in the Trump administration. This decline is attributed to several factors beyond Musk’s political involvement. Weak global sales, particularly in key markets like Germany and China, have raised concerns about Tesla’s growth trajectory. This has led to analysts downgrading delivery forecasts, further unsettling investors.
Additionally, market volatility driven by President Trump’s tariff policies and broader economic uncertainty has weighed heavily on Tesla and other tech stocks. Musk’s leadership distractions, including his role in the Department of Government Efficiency, have also fuelled doubts about his focus on Tesla. Despite Musk’s optimistic reassurances, the selloff reflects a combination of operational challenges, market dynamics, and investor skepticism.
Still disconnected with reality
Tesla’s valuation metrics reveal a significant disconnection with reality. The forward price-to-earnings (P/E) ratio of 82.9 times represents a staggering 450% premium to the consumer discretionary sector average. What’s more, the company doesn’t appear to have the growth to back this valuation up, with the price-to-earnings-to-growth (PEG) ratio sitting at 4.8 — a 235% premium to the sector average.
This overvaluation persists largely because some analysts and investors continue to tout Tesla’s long-term prospects in autonomous driving and robotics. However, in autonomous driving, competitors like Waymo appear have a substantial headstart. Waymo, a subsidiary of Alphabet, has already launched commercial robotaxi services in multiple cities. This is leveraging years of testing and regulatory approvals, while Tesla’s Full Self-Driving (FSD) technology remains in beta and faces scrutiny over safety and reliability. You can also, as of 4 March, hail a Waymo in Austin on Uber. That’s a big step.
In robotics, Tesla’s Optimus project aims to revolutionise automation with humanoid robots, targeting deployment in factories and eventually consumer markets. However, Optimus is still in its infancy, with plans to scale production to 1,000 units by 2025. This is a far cry from the ambitious 100m units Musk envisions long term.
While Tesla’s AI and robotics initiatives are promising, there are significant execution risks. This makes the company’s current valuations appear disconnected from its near-term realities. Given the current volatility, I’m keeping my powder dry. I actually want Tesla to succeed because its long-term focus is exciting. However, I simply can’t put my money behind it at these valuations.
