Throughout 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 massively costly. Nonetheless, as this current rally demonstrates, many individuals nonetheless see some worth within the electrical automotive 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 presently buying and selling on 275 occasions historic earnings. However this determine has been adjusted for the loss made on cryptocurrency. Embody this and the reported EPS drops to $1.44 and the price-to-earnings (P/E) ratio will increase to 339.
Another valuation measure is the P/E-to-growth (PEG) ratio. Usually talking, a determine beneath one signifies good worth. For Tesla to have a PEG lower than one, its earnings would must be rising massively. They aren’t. The group’s income within the third quarter of 2025 was 12% increased than a yr earlier.
It’s an analogous story in relation to the corporate’s steadiness sheet. It had a e book worth (property much less liabilities) of $81bn at 30 September. Its present market cap is eighteen.6 occasions increased.
And Tesla’s valuation appears much more unbelievable when in comparison with among the extra established names within the business. Take Ford for instance. It has a P/E ratio of lower than 10.
| 4 quarters to 30.9.25 (until acknowledged) | Tesla | Ford |
|---|---|---|
| Income ($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 dangle on…
By now, I believe tens of millions of loyal followers of the corporate are yelling in frustration claiming that I’m lacking the purpose. Little doubt they’ll level out that Tesla’s a know-how firm and never a automotive producer. They’ll recommend that making a comparability with Ford is meaningless. I believe they’ll argue that its worth lies in its future potential with, specifically, its self-driving know-how, robo-taxis, and robots.
However even at their peak, the tech-focused Magnificent 7 (of which Tesla is one), had been buying and selling at a mixed a number of of not way more than 50 occasions earnings. Nvidia could be valued practically 10 occasions increased, 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 big. Earlier than Elon Musk’s huge $1trn pay package deal was accredited earlier this yr, ARK Make investments predicted that the corporate’s robo-taxi community would generate not less than $600bn of annual income by 2029. Others predict even larger 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 practical however I admit I’ve my doubts. In fact, historical past suggests I’m going to be confirmed improper (once more). Tesla’s inventory has been over-valued for so long as I can bear in mind. And but many individuals — together with some institutional buyers — have made a great deal of cash from their shares within the group. As well as, I’m positive a number of others are sitting on some spectacular paper beneficial properties. Nonetheless, regardless of this, I simply can’t carry myself to speculate.
