2025 has been shaping up to be an annus horribilis for Tesla (NASDAQ: TSLA) and we are barely one third in. Following a small decline in full-year vehicle sales volumes last year, the first quarter of 2025 saw vehicle deliveries slump year-on-year. Earnings also tumbled. Meanwhile, Tesla stock has fallen 31% so far this year. Ouch!
Still, I am a long-term investor and from a long-term perspective, Tesla has been a stock market superstar. The Tesla stock price, even after that recent crash, is currently 500% higher than it was five years ago. Few shares have performed anywhere near as well as that over the same period.
So could now be the time to snap up some Tesla shares for my portfolio in the hope that it turns out to be a long-term bargain?
Valuing Tesla’s never been easy. It still isn’t
A common way to value shares is looking at the ratio of price to earnings, commonly known as a P/E ratio.
In Tesla’s case that is 154. To put things in perspective, I generally see a P/E ratio above 20 (and sometimes well below that) as pricey. So Tesla’s current valuation is far from a bargain based on that metric.
But Tesla has long confounded investors. Its P/E ratio has been abnormally high for a car company for almost its entire time on the stock market.
That raises the question of whether ‘a car company’ is the right way to view Tesla. If it is, I think Tesla stock looks absurdly overvalued even before considering risks such as a more competitive electric vehicle (EV) market hurting profit margins across the sector, as we saw in Tesla’s woeful first quarter results.
Tesla could be a bargain, but a very high-risk one
But if Tesla, which last year delivered close to 1.8m vehicles, is not a car company, then what on earth is it?
One approach – and it is one some Tesla investors have long taken – is that the car is just the start of things for the firm. The software used to develop self-driving vehicles could help in an array of other activities too.
Tesla’s expertise in power generation and storage has enabled it to build a business devoted to large-scale installations. That provided a rare bright spot in the first quarter results, with quarterly revenues surging 67% year-on-year to $2.7bn. That put it close in size to the “services and other revenues” quarterly revenue, showing that software really can be monetised, alongside things like tax credits.
Meanwhile, plans for truck production at scale, automated taxi fleets and robotics show that Tesla’s best days may yet be ahead.
It has a track record of delivering incredible revenue growth. The current bump in the road does not mean management might not pull that off again, in which case the current Tesla stock price could be a long-term bargain.
Investment in the stock market always involves taking a view on what could happen in future. I do think Tesla could yet surge in value.
But a lot of the potential drivers for that remain unproven and highly speculative for now. Given such big risks, the current Tesla price is too high for my comfort so I will not be investing.
