People who invested in Tesla (NASDAQ: TSLA) a few years back have been laughing all the way to the bank. Sure, the electric vehicle maker’s stock has crashed 32% so far this year. But it is still up 404% over the past five years. Even without a dividend, that is a simply stellar return.
Given that they are now around a third cheaper than they were at the start of 2025, could Tesla shares be a potential long-term bargain for my portfolio?
The potential downside is obvious
I know, I know. I have not missed the memo.
Investors have been dumping Tesla shares as the brand has suffered reputational damage and first-quarter volumes slumped year on year.
Even after that share price crash, Tesla’s price-to-earnings ratio is 151. But first-quarter earnings slumped and a competitive electric vehicle market could spell bad news for Tesla’s profit margins.
In other words, many investors have been fleeing Tesla and trying to turn paper gains into actual ones, potentially in the expectation of further price falls. I understand.
In one way, Tesla’s valuation makes no sense
But it was always inevitable that, sooner or later, the electric vehicle market would become more competitive than before.
Tesla’s vehicle sales volumes, while lower in the first quarter, had grown at pace for years until a slight downturn last year. That was also inevitably going to be hard to maintain, especially as Tesla took time during the quarter to switch over some production lines, meaning they were idle for a while.
Tesla’s valuation has long seemed hard to justify on any traditional metric. Yet Tesla shares have continued to be highly valued.
Even after the fall this year, the company commands a market capitalisation of $862bn.
Compare that to Ford, with a market cap of $42bn, or General Motors and its market cap of $44bn. Even electric car market leader BYD – that has seen sales soar while Tesla’s have fallen – has a market cap of around $150bn.
Clearly, Tesla’s valuation has for years not just (or even mainly) been about selling cars.
There’s still a lot to like about Tesla
I think the only rational way to understand why Tesla shares – already very pricy five years ago — have more than quintupled since then is to see the investment case as much bigger than cars alone.
It involves trucks, which are slated to start scale production this year. It also involves self-driving technology and the opportunities that can unlock, such as fleets of driverless taxis.
The Tesla investment case also involves robotics and other uses of the company’s extensive intellectual property, such as energy storage. That line of business is already generating billions of dollars each quarter for the firm and is growing quickly.
If these young businesses fulfil their potential, buying Tesla shares today after their recent tumble could be a brilliant long-term opportunity for my portfolio.
However, a lot would be riding on what is little more than faith. Those businesses could do brilliantly – but some may never even get off the ground, in a tightly regulated and highly competitive environment.
I prefer to invest on facts not hope. So while I see an argument that Tesla could be a brilliant buying opportunity today, on balance I reckon it remains highly overvalued and I will not be investing.
