Tesla (TSLA) stock is up 96% over six months, but its rally is fizzing out. Recent Q4 results failed to impress, and despite Elon Musk being a prominent member of the Trump Administration, Tesla stock has suffered due to Trump’s reactionary tariffs and the specter of a new trade war.
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Sadly, as much as I want to be bullish on this futuristic pioneer, I simply can’t get behind the $1.32 trillion valuation. I’m bearish on TSLA and expect sustained share price declines over the coming months as market reality catches up to the emotional hype.
Trump Tariffs Undermine Tesla Growth Story
The first cloud casting a shadow on TSLA is the current geopolitical maelstrom surrounding potential U.S. tariffs on Canada, Mexico, and China.
Tesla can’t escape Trump’s tariffs despite the 25% levy on goods from Mexico and Canada being delayed for one month. If tariffs do indeed appear, TSLA is likely to suffer. Its globalized supply chain and factory network are exposed to tariffs and dependence on other component manufacturers. While investors may hypothesize that these tariffs are simply Trump’s tactic to bring partners to the negotiating table, it seems likely that some tariffs, be they on China, the EU, or Canada and Mexico, will stick.
One obvious issue is factory location and tariff exposure. Tesla’s production facilities in America, notably the Texas gigafactory, rely on Canadian-sourced aluminum and steel. Moreover, Tesla imports battery cells from Panasonic’s (PCRFF) Nevada plant, which uses lithium from China and nickel from Australia. And then there’s Giga Mexico, a new factory to be brought online this year. While Mexico has avoided Trump’s tariffs for one month, the Tesla facility will depend on Chinese Tier 1 suppliers for components like battery modules and electronics.
But these aren’t the only issues. Canada also supplies critical materials like cobalt and graphite, both of which are used in battery production. Tesla has operations in Ontario, having purchased Hibar Systems in 2019. And, of course, Tesla uses batteries from Contemporary Amperex Technology (CATL), a Chinese battery manufacturer.
Tesla’s vertically integrated model mitigates some risks, but tariffs on Canadian materials and lingering reliance on Chinese components create unavoidable cost pressures and supply bottlenecks. If Trump’s tariff policy comes to fruition, Tesla’s margins will face further strain, particularly for US-made vehicles dependent on cross-border supply chains.
Ambitious Plans Leave Tesla With a Lot to Deliver
I’m also bearish because Tesla’s stock valuation increasingly hinges on Elon Musk’s futuristic promises — autonomous vehicles, humanoid robots (Optimus), and even Mars colonization — rather than current operational performance. Despite Musk’s vision of Tesla becoming a $4–25 trillion company through AI and robotics, the company struggles to meet foundational benchmarks, particularly in automation.
- Autonomy Delays: Full Self-Driving (FSD) technology remains in “supervised” beta testing, with unsupervised autonomy still unproven despite Musk’s 2025 rollout targets.
- Robotics Hype: Optimus robots, touted as a $1 trillion revenue driver, face production delays, with only 1,000 units planned for factory testing by 2025. Competitors such as Huawei’s Kua Fu robot threaten to outpace Tesla in commercialization.
- Automation Setbacks: Tesla’s factories, once hailed as “alien dreadnoughts” of automation, still rely heavily on human labor, with Cybertruck production plagued by inefficiencies.
While Musk claims Tesla’s value lies in its AI/robotics potential, Q4 2024 saw a 70% net income drop amid EV sales declines and price cuts. The stock’s massive surge post-2024 elections reflects investor faith in Musk’s narrative, not current fundamentals.
Tesla’s valuation now mirrors a tech moonshot, banking on unproven technologies. Yet, with Optimus production delayed, FSD regulatory hurdles, and Huawei’s robotics advancing, Tesla risks becoming a cautionary tale of ambition outpacing execution. As Musk pivots to “unsupervised FSD” and robotaxis, investors face a stark choice: bet on the hype or confront the widening chasm between promise and reality.
Tesla’s Valuation is Difficult to Justify
As it stands, I believe Tesla’s valuation is almost impossible to justify. At 134x forward earnings, Tesla trades at a 653% premium to the consumer discretionary average. Moreover, the price-to-earnings (P/E) ratio does not approach anything close to normal in the medium term — the current consensus shows TSLA’s P/E ratio only falling to 65x by 2028.
The price-to-earnings-to-growth (PEG) ratio also reflects this grossly unattractive valuation. TSLA’s forward PEG ratio currently sits at 13.3x, representing a massive 705% premium to the sector average and a 247% premium to Tesla’s five-year average.
Is Tesla a Buy or Sell Today?
On TipRanks, TSLA comes in as a Hold based on 12 Buys, 12 Holds, and nine Sell ratings assigned by analysts over the past three months. The average TSLA stock price target is $338.85 per share, implying ~11% downside potential.
TSLA Market Power Set for Discharge
I’m bearish on Tesla stock due to its extreme valuation, ongoing tariff risks, and overreliance on unproven AI and robotics narratives. While Musk’s ambitious vision captivates investors, the company’s fundamentals tell a different story — declining margins, automation struggles, and competitive threats in both EVs and robotics.
Tariffs (if eventually unleashed) further complicate Tesla’s global supply chain, adding cost pressures that would likely erode profitability and push up costs. Some projects may even have to be discontinued if critical component parts cannot be sourced from natural monopolist suppliers in China. With analysts forecasting downside potential and the stock trading at a staggering premium, the risk-reward balance is skewed towards risk. Therefore, Tesla’s future may be bright, but its current stock remains overvalued and is set for a discharge later this year.
