In the course of the six months to 22 December, the Tesla (NASDAQ:TSLA) inventory worth has risen by roughly 50%. But the entire metrics I exploit to evaluate the group’s inventory market valuation point out that its shares are vastly costly. Nonetheless, as this latest rally demonstrates, many individuals nonetheless see some worth within the electrical automobile maker.
Clearly, I’m lacking one thing. What may or not it’s?
Off the Richter scale
Over the 4 quarters to 30 September, Tesla reported earnings per share (EPS) of $1.77. This implies its inventory is at the moment buying and selling on 275 instances historic earnings. However this determine has been adjusted for the loss made on cryptocurrency. Embrace this and the reported EPS drops to $1.44 and the price-to-earnings (P/E) ratio will increase to 339.
An alternate valuation measure is the P/E-to-growth (PEG) ratio. Typically talking, a determine beneath one signifies good worth. For Tesla to have a PEG lower than one, its earnings would have to be rising vastly. They aren’t. The group’s income within the third quarter of 2025 was 12% greater than a yr earlier.
It’s the same story with regards to the corporate’s steadiness sheet. It had a e-book worth (belongings much less liabilities) of $81bn at 30 September. Its present market cap is eighteen.6 instances greater.
And Tesla’s valuation appears much more unbelievable when in comparison with a number of the extra established names within the business. Take Ford for example. It has a P/E ratio of lower than 10.
| 4 quarters to 30.9.25 (until said) | Tesla | Ford |
|---|---|---|
| Income ($bn) | 95.6 | 189.6 |
| Market cap at 22.12.25 ($bn) | 1,520 | 52 |
| Earnings per share ($) | 1.77 | 1.35 |
| Inventory worth at 22.12.25 ($) | 486 | 13 |
| Worth-to-earnings ratio | 275 | 9.6 |
However cling on…
By now, I think thousands and thousands of loyal followers of the corporate are yelling in frustration claiming that I’m lacking the purpose. Little doubt they may level out that Tesla’s a know-how firm and never a automobile producer. They are going to counsel that making a comparability with Ford is meaningless. I think they may argue that its worth lies in its future potential with, particularly, its self-driving know-how, robo-taxis, and robots.
However even at their peak, the tech-focused Magnificent 7 (of which Tesla is one), have been buying and selling at a mixed a number of of not rather more than 50 instances earnings. Nvidia can be valued almost 10 instances greater, if it was judged on the identical foundation as its automotive cousin. Nonetheless, regardless of my considerations, the consensus of fifty analysts is that Tesla’s solely marginally over-valued.
And if Tesla can get issues proper, the potential is large. Earlier than Elon Musk’s huge $1trn pay bundle was accredited earlier this yr, ARK Make investments predicted that the corporate’s robo-taxi community would generate a minimum of $600bn of annual income by 2029. Others predict even greater returns from its Optimus robotic programme. Musk himself reckons it may account for 80% of Tesla’s market cap. In 2024, he predicted it would drive Tesla’s inventory market valuation in the direction of $25trn.
Time will inform whether or not these figures are real looking however I admit I’ve my doubts. In fact, historical past suggests I’m going to be confirmed flawed (once more). Tesla’s inventory has been over-valued for so long as I can keep in mind. And but many individuals — together with some institutional traders — have made a great deal of cash from their shares within the group. As well as, I’m positive plenty of others are sitting on some spectacular paper good points. Nonetheless, regardless of this, I simply can’t carry myself to take a position.
