It has not been a great year for Tesla (NASDAQ: TSLA). The electric vehicle maker saw car sales and profits plummet in the first quarter. Tesla stock is up 55% in barely a month – but it is still 15% cheaper now than at the start of 2025 and 29% below where it stood in December.
So, even though the share price has rebounded strongly lately, clearly lots of investors continue to avoid Tesla.
Are they wise? Or might they miss out on a potentially brilliant long-term opportunity? If so, could now be the moment for me to snap up some Tesla shares myself?
Two very different viewpoints
Like any market, the stock market basically works by matching two groups of people with different viewpoints (or that is the theory at least).
Of course investors have their own reasons to buy or sell and those may have nothing to do with the share in question. Perhaps they love a company but need to raise cash for a tax bill or school fees.
However, at a simple level, some people think a share is worth selling at a given price so likely think it is approaching (or already) a point where it is overvalued. Meanwhile, buyers are happy to pay that much for the share, so presumably think it still offers value.
That is true of any share – but it has been starkly noticeable in the case of Tesla. For years it has sharply divided investors. The latest wild price swings suggest the market is nowhere near a consensus on what the firm might really end up being worth.
The bear case is obvious
To start with, consider the arguments against me buying Tesla stock at its current valuation.
The price-to-earnings (P/E) ratio is 189. That strikes me as enormously expensive.
It might get worse, though. After all, the first quarter saw earnings plummet. If that continues, let alone deteriorates, the valuation could be even more stretched.
The electric vehicle market has got a lot more competitive. Tesla sales volumes have been falling, its profit margins have been squeezed, and it is losing market share.
Given all of that, does it merit a market capitalization of anything like its current $1.1trn?
But there’s also a bull case
Clearly some investors reckon so, given that Tesla shares have increased in value by over half in a matter of weeks.
Why are they so optimistic?
Well, despite recent challenges, Tesla remains a leading electric vehicle maker with a strong brand, large distribution network without intermediaries, and unique technology. It plans to start selling trucks at commercial scale soon.
It also has a fast-growing energy storage business. On top of that, potential new business areas such as robotics and automated taxis could end up being massive for the company.
If the vehicle business returns to growth and those new endeavours do well, today’s Tesla stock price could end up being a bargain.
I’ll wait for now
However, while I see what could go right, it is far from guaranteed.
From growing competition to brand image damage, I think Tesla has a lot on its plate to keep the business at its current level let alone grow exponentially.
On that basis, the share looks highly overvalued to me. I will not be investing.
