Tesla (TSLA) stock jumped again on Wednesday, leading the market upwards following some positive inflation data. However, this only served to make the electric vehicle (EV) maker more expensive, with the stock now trading at 160x forward earnings. Despite being broadly supportive of Elon Musk’s business endeavors, I’m bearish on Tesla simply because the valuation is incredibly hard to justify and Musk’s plans hard to quantify.
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Tesla’s Plans Remain Ambitious
I’m bearish on Tesla, but not because it lacks ambition. Instead, I’d contend that Tesla’s objectives, which extend far beyond electric vehicles with autonomous driving and robotics at the forefront, are very ambitious.
To start with, the company’s progress in these areas has been slower than initially promised. While Tesla continues to tout its Full Self-Driving (FSD) capabilities, it remains at Level 2 autonomy, lagging behind competitors like Waymo and Cruise in achieving true autonomous driving.
Meanwhile, the company’s plans for Optimus robots and Tesla trucks on Mars seem even more far-fetched to some onlookers, bordering on science fiction rather than near-term reality. Some analysts have also suggested that the disconnect between Elon Musk’s bold promises and actual delivery timelines has become a recurring theme, potentially eroding confidence in the company’s ability to achieve its very ambitious goals. Moreover, Tesla’s near-term plans face increasing competition and regulatory scrutiny.
Autonomous Driving Technology Has Faced Criticism
The company’s autonomous driving technology has also faced criticism for its safety record and misleading marketing, while its robotics division remains largely conceptual despite a promise of rollout in 2025. And a traditional automakers and tech giants pour resources into electric vehicles and self-driving technology, Tesla’s first-mover advantage may be eroding.
With this in mind, the company’s ability to maintain its technological edge — especially the strength of its compute power — while scaling production and entering new markets is particularly important in determining whether it can live up to its ambitious plans and justify its lofty valuation.
Quantifying Tesla’s Goals Is Impossible
Secondly, my bearishness is further reinforced by the difficulty of trying to quantify Tesla’s objectives, which may be an exercise in futility, given the company’s penchant for pivoting into uncharted territories. ARK Invest’s ambitious $2,600 share price target for 2029 exemplifies the wide range of forecasts, with projections varying wildly among analysts.
These estimates often rely on speculative assumptions about Tesla’s future ventures, including robotaxis and AI, which are yet to materialize as viable revenue streams. Moreover, the idea of quantifying potential earnings from Mars operations borders on absurdity, highlighting the inherent challenge in valuing a company with such nebulous long-term aspirations.
And I’m not the only one struggling to quantify Tesla’s objectives. Indeed, the most bearish analyst, Gordon Johnson of GLJ Research, who maintains a Sell rating with an extremely low price target of $24.9, assigns no value to Tesla’s long-term objectives.
Tesla’s Valuation Is… Unique
However, the main reason why I’m bearish is Tesla’s valuation metrics, which stand in contrast to both industry norms and its own historical averages. This raises serious questions about the stock’s current price and its sustainability.
With a forward price-to-earnings (P/E) ratio of 160x on a non-GAAP basis, Tesla trades at a staggering 843.5% premium to the sector median. This disconnect from fundamentals is further emphasized by its forward price-to-earnings-to-growth ratio of 17.5x, which is 971.8% higher than the sector median and 378.3% above Tesla’s own 5-year average.
Even looking ahead, Tesla’s estimated P/E ratios are elevated, with 2027’s projected P/E of 84.2x still significantly above industry norms. These metrics suggest that Tesla’s current valuation is predicated on extraordinary future growth and success in unproven markets rather than its present financial performance. Such a valuation leaves little room for error and poses significant downside risk if the company fails to meet these lofty expectations. As a result, the execution risk is huge.
Is Tesla Stock a Buy, According to Analysts?
On TipRanks, TSLA comes in as a Hold based on 13 Buys, 12 Holds, and nine Sell ratings assigned by analysts in the past three months. The average TSLA stock price target is $329.63, implying about 20.3% downside risk.
The Bottom Line on Tesla Stock
I’m bearish on Tesla because its valuation is disconnected from fundamentals and heavily reliant on unproven future ventures. While the company leads in the EV market and boasts ambitious plans in autonomous driving and robotics, execution has typically lagged behind promises, and competition continues to intensify. As much as I want to back this Musk venture, I simply can’t.
The speculative nature of its long-term goals makes quantifying its potential nearly impossible, leaving investors to rely on lofty projections that may not materialize. With a forward P/E of 160x and analysts forecasting downside potential, Tesla’s current price reflects immense risk and suggests an investment would be highly speculative. For these reasons, caution is warranted when considering the stock at its present valuation.
