2025 has been shaping as much as be an annus horribilis for Tesla (NASDAQ: TSLA) and we’re barely one third in. Following a small decline in full-year car gross sales volumes final yr, the primary quarter of 2025 noticed car deliveries hunch year-on-year. Earnings additionally tumbled. In the meantime, Tesla inventory has fallen 31% up to now this yr. Ouch!
Nonetheless, I’m a long-term investor and from a long-term perspective, Tesla has been a inventory market famous person. The Tesla inventory worth, even after that current crash, is at present 500% larger than it was 5 years in the past. Few shares have carried out anyplace close to in addition to that over the identical interval.
So might now be the time to snap up some Tesla shares for my portfolio within the hope that it seems to be a long-term cut price?
Valuing Tesla’s by no means been simple. It nonetheless isn’t
A standard option to worth shares is trying on the ratio of worth to earnings, generally often called a P/E ratio.
In Tesla’s case that’s 154. To place issues in perspective, I usually see a P/E ratio above 20 (and typically effectively beneath that) as dear. So Tesla’s present valuation is way from a cut price based mostly on that metric.
However Tesla has lengthy confounded traders. Its P/E ratio has been abnormally excessive for a automotive firm for nearly its complete time on the inventory market.
That raises the query of whether or not ‘a automotive firm’ is the suitable option to view Tesla. Whether it is, I feel Tesla inventory appears to be like absurdly overvalued even earlier than contemplating dangers similar to a extra aggressive electrical car (EV) market hurting revenue margins throughout the sector, as we noticed in Tesla’s woeful first quarter outcomes.
Tesla may very well be a cut price, however a really high-risk one
But when Tesla, which final yr delivered near 1.8m autos, will not be a automotive firm, then what on earth is it?
One method – and it’s one some Tesla traders have lengthy taken – is that the automotive is simply the beginning of issues for the agency. The software program used to develop self-driving autos might assist in an array of different actions too.
Tesla’s experience in energy era and storage has enabled it to construct a enterprise dedicated to large-scale installations. That offered a uncommon shiny spot within the first quarter outcomes, with quarterly revenues surging 67% year-on-year to $2.7bn. That put it shut in measurement to the “companies and different revenues” quarterly income, exhibiting that software program actually may be monetised, alongside issues like tax credit.
In the meantime, plans for truck manufacturing at scale, automated taxi fleets and robotics present that Tesla’s greatest days might but be forward.
It has a monitor document of delivering unbelievable income development. The present bump within the street doesn’t imply administration won’t pull that off once more, during which case the present Tesla inventory worth may very well be a long-term cut price.
Funding within the inventory market all the time includes taking a view on what might occur in future. I do assume Tesla might but surge in worth.
However a variety of the potential drivers for that stay unproven and extremely speculative for now. Given such huge dangers, the present Tesla worth is just too excessive for my consolation so I cannot be investing.
