Sales of Tesla (NASDAQ: TSLA) cars plummeted in the first half of the year, with volumes coming in 13% below the same period last year. So, it might stand to reason that Tesla stock has had a torrid time of it, too, right?
Not necessarily!
The carmaker’s stock price is down 14% so far in 2025. But over the past year, it is up – and not just by a little bit.
A 68% gain means that Tesla stock is worth slightly over two-thirds more than it was one short year ago.
That represents more than half of the total 134% gain seen over the past five years.
With sales falling and profits set to suffer from the end of US tax credits, increased electric vehicle market competition, and falling sales volume, can Tesla really justify its stock market capitalisation of $1.1trn?
Given the stock price, the answer to that question seemingly depends on who you ask!
The current bull case for Tesla
Looking on the positive side, there is still a lot to like about the company.
Sure, first-half sales showed a bad decline. But that could be down to temporary production line closures for retooling and the Tesla boss’s high-profile political involvement. As both factors recede into the rear-view mirror, maybe sales can grow.
Energy generation and storage revenue showed a 7% year-on-year decline in the most recent quarter. But the long-term trend in this business remains positive, with the footprint of the equipment deployed to date growing over time. Tesla has a compelling technological capability in this area.
The company says volume production of its truck and self-driving taxi is ‘slated’ for 2026 and self-driving taxi trials are ongoing in the US (albeit with a Tesla employee in each car).
In other words, the core car business could rebound from a bad start to the year, power generation and storage continues to demonstrate its long-term potential, and new business areas are moving closer to commercialisation.
The bear case, at a $1.1trn market cap
Still, what does all that add up to in terms of an investment case?
Much of it is speculative – and, in my view, ought to be valued accordingly.
The car business is huge and I do think that with the right management effort it can be returned to sales growth. But sales are not the only issue it faces.
Profitability is under threat on multiple fronts, from the end of US tax credits to pricing pressure growing as rivals offer cheap models to try and build market share.
The power generation and storage business has demonstrated strong long-term potential, in my view. At 12% of Tesla’s most recent quarterly revenue, I do not see it as a rounding error, but I also do not think it is core to the investment case.
I simply see no real justification for the Tesla stock price to have soared over the past year. Trading for 201 times earnings, it looks badly overvalued to me at the moment. I will not touch it with a bargepole.
