Tesla remains a risky investment, even after the crash
Tesla stock soared from $240, before the presidential election, to a high of $488, then ended up below where it started:
Some people recommended that you buy, during that entire time. Analyst Garrett Nelson explains why he thinks Tesla is worth $540 per share:
“Our 12-month price target of $540 is based on a 2026 P/E of 140x. We expect TSLA to trade at a significant premium to other automakers given its growth prospects, as it aims to deliver on its goal of growing annual auto volumes to 20M by 2030. TSLA’s valuation premium relative to auto competitors reflects various technologies in development, including a ride hailing app, a humanoid robot, AI computing, and fully self-driving vehicles.”
Tesla sold less than 2 million cars in 2024, but Nelson imagines that number will go up to 20 million, 5 years from now:
Factories don’t double like bacteria, there’s no reason to expect that the exponential growth like that can continue. Notice that Tesla sales stopped growing in 2024, and actually declined a little bit, so it’s not clear that we can forecast future growth at all.
But let’s play with some numbers, and pretend that the company could keep up the rate of growth they had in the past:
Following that exponential curve, Tesla hits the goal a year early: in 2029, they make more than 20 million cars.
Right now, they sell 2 million cars at $50,000/car for $100 billion in revenue.
Their net profit margin is 7% (normal for a car company), so they earn $7 billion in profit.
Scale that up to 20 million cars, and they’d make $70 billion in profit.
A normal car company has a price/earnings ratio of 7 (Ford) to 9 (Toyota).
At a P/E of 9, Tesla would have a market cap of 630 billion dollars, and the company would be worth $200 per share in 2030.
That is: you buy shares for $220, today. Tesla executes on a perfect plan, grows 10 times larger than they are now, people across the world start buying their cars, and you still lose 10% of your investment.
If you bought at $488 per share? Good luck getting your money back.
And if they don’t succeed at growing 10 times larger, even $200 might be optimistic.
Tesla is not growing right now
To sell 20 million cars per year, Tesla needs to find 20 million people that want to buy one. The US market is only around 15 million cars per year, the European market around 10 million.
China is the largest auto market in the world, with 24 million vehicles sold. There is plenty of room for Tesla to grow there, but there’s also lots of competition with Chinese companies.
There are markets beyond that — 3 million cars in India, millions in Latin America, but those are mostly poorer countries. To the extent that they are buying electric vehicles, it’s mostly Chinese imports.
Getting to 20 million cars sold either requires huge growth in China or taking over most of the US and European markets.
At the moment, it looks like Tesla sales are actually going down, not up. Sales went down across Europe, in January:
In China, they went down 50% in February. In Australia, there was a 70% drop in February. In California, the drop was about 10% in Q4 2024.
It’s not clear, yet, how serious this is, because the numbers are very noisy, from month to month. Here’s the data for France:
Here are the monthly numbers for Australia. The 70% drop is, again, just comparing February last year to February this year:
Last February, Tesla sold a lot of cars. They are currently working on updating the model Y, and aren’t shipping as many cars. There will probably be a spike in sales, after that.
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In all these places, you can probably gauge the interest in cars based on Google searches. It looks like there’s some decline in Germany, but it’s more like 20%, not 60%:
The situation is the same in California: slightly less interest in the Model 3, while the Model Y is about the same.
And Tesla is not making any gains in the red states, to compensate:
Over all, you might guess the demand is down 10-20%, this year.
Even if the demand for Tesla’s isn’t in total freefall, it certainly isn’t growing.
For Tesla to double their sales, they need to build twice as many cars and also find twice as many customers.
A lot of Europeans hate Elon Musk. A lot of American liberals hate Elon Musk. And conservatives in the US aren’t going to buy an electric car, because they don’t believe in global warming.
That’s not a good business model.
Tesla could still invent something else more lucrative than cars
Some people insist that Tesla is “not just a car company”.
Let’s look at how another analyst, Adam Jonas, comes up with a high price target. In his base case scenario, Tesla is worth $430:
“For the 430 price target, Jonas values Tesla network services at $168 per share, or 39% of the total value target. Meanwhile, Jonas values Tesla’s autonomous robotaxi service at $90 per share, one dollar more than his value for Tesla’s core automobile business.”
He doesn’t value the auto business any higher than I do, but he puts a large value on all cars using Tesla’s charging network. That’s debatable —other people put the value of that as low as $3 per share.
In his bullish scenario, Tesla is worth $800:
“Jonas also increased his bull case for Tesla stock to $800, up from $600, on Monday. In this scenario, Tesla sells 7 million vehicles by 2030 with 26% gross margin. The auto business is valued at $130 per share in this scenario, with Tesla’s ridesharing service making up a value of $263 per share, or 33% of the $800 price target. Jonas pegs Tesla’s network services at $248 per share in his bull case.”
The biggest component is if they invent self driving cars and make a ton of profit from those.
Elon’s been making promises that his cars would soon drive themselves since 2016. So far, he’s always been wrong. Maybe he’ll eventually be right. This year, he promises to launch robotaxis in Austin and then in California.
Will that happen? Will they be any more successful than Google’s Waymo service? Will his taxis be popular?
After Elon’s Nazi salute and his support for Germany’s far right AfD party, some people have started referring to his cars as “swasticars”. There have been jokes about the new “Model SS”. Will US liberals, or Europeans, want to ride around in a Nazi branded taxi?
Should you buy the stock?
If you think that they’re going to invent lucrative robotaxis, humanoid robots, or something else, then it might double from here. As a pure car company, it’s probably still overvalued.
For a middle of the road forecast, Morningstar analyst Seth Goldstein puts a price target at $250. That assumes the company will build 5 million cars by 2030, launch a robotaxi, and grow their energy storage business rapidly.
In his downside scenario, Tesla gets no business from autonomous driving software, and only builds 3.5 million cars by 2030. In that case, Tesla is only worth $100 per share.
Because this stock is so volatile, it’s hard to consistently recommend, and might make more sense as a trade than as an investment. In 2022, I said that Tesla was overvalued at $300/share, and predicted it could crash to $150. In January 2023, I recommended buying at $120/share. In July 2023, I said it was overpriced again at $293/share.
Right now, it’s sitting somewhere in the middle, a little bit below a middle of the road fair value, but still well above the worst case scenario — to me, that looks like above average risk for an average reward. You could buy lots of other companies for 10–20% upside, without the risk of losing half your money.
The one thing you do get with Tesla is wild volatility. Most of the times that it has dropped, in the past, it has rebounded over the next year. Some kind of blind optimism took it to $488. It’s not crazy to speculate on another bounce like that. But as a long term investment, it’s not clear if the value is much higher than where it trades today.
