Has it really been such a bad year for Tesla (NASDAQ: TSLA)? Sure, there has been a stream of gloomy headlines about the carmaker so far in 2025, pointing to worries such as falling car sales and the coming end of lucrative tax credits that have helped boost the company’s profitability. Yet Tesla stock is still 37% higher than it was a year ago.
Over five years, its performance is even more impressive. During that period it has grown 234%.more than twice as good as the Nasdaq’s overall growth of 97%.
Tesla has long confounded its critics, many of whom have been saying for over a decade that its business model is flawed and stock valuation unjustifiable.
Now it stands at another critical point in its history, with car sales volumes declining sharply year on year. They were down 13% in the second quarter. Other challenges include an underwhelming launch of self-driving taxi services in a Texan city and strong competition not only in its existing areas but also fields it is eyeing for growth, such as robotics.
This could be a contrarian situation
Given all of that, now may seem like an odd time to consider adding Tesla stock to my portfolio.
However, the price is sharply lower than it was. Tesla stock has tumbled 21% since December.
While there are challenges, the firm has sizeable strengths. The car business is struggling and I expect ongoing tough competition from rivals like BYD. But Tesla still has a large business and sizable installed customer base. It has a range of proprietary technology.
The power generation division is growing. The 9.6 GWh of energy storage products it deployed in the second quarter was a little higher than the same quarter last year, which until that point was its best quarter ever. However, power generation and storage revenues in the first half fell 7% year-on-year. That is a concerning performance.
Over time I see more potential for the power generation and storage business. Meanwhile, both automated taxis and robotics could end up becoming substantial sales drivers for Tesla.
With record revenues of $98bn last year, Tesla is already a huge business. With some investors focusing on the potential for a share price crash right now, buying Tesla stock at the moment might look like a potential contrarian approach.
Here’s what concerns me
But I am not sure it is really a contrarian approach at all.
In my view, being a contrarian investor involves a couple of elements. One is going against a lot of the prevailing popular thinking about a company. Focusing on the sizeable future potential for Tesla seems contrarian right now in that sense.
But prevailing wisdom on a share might be the way it is for a reason. I think smart contrarian investment therefore always requires an investor to hang onto some important principles, like not overpaying for a share from a long-term perspective.
That is where I see Tesla stock less as a contrarian idea right now. If it was trading at five or 10 times earnings, say, I might see it as contrarian.
But Tesla trades for 185 times earnings even using last year’s full-year earnings. At that valuation, I do not think Tesla stock is currently a truly contrarian investment idea. I will not be investing.
