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 automobile gross sales volumes final yr, the primary quarter of 2025 noticed automobile deliveries stoop year-on-year. Earnings additionally tumbled. In the meantime, Tesla inventory has fallen 31% to this point 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 value, even after that current crash, is presently 500% increased than it was 5 years in the past. Few shares have carried out wherever close to in addition to that over the identical interval.
So may now be the time to snap up some Tesla shares for my portfolio within the hope that it seems to be a long-term discount?
Valuing Tesla’s by no means been straightforward. It nonetheless isn’t
A typical option to worth shares is wanting on the ratio of value to earnings, generally often known as 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 properly under that) as expensive. So Tesla’s present valuation is much from a discount based mostly on that metric.
However Tesla has lengthy confounded buyers. Its P/E ratio has been abnormally excessive for a automobile firm for nearly its total time on the inventory market.
That raises the query of whether or not ‘a automobile firm’ is the best option to view Tesla. Whether it is, I believe Tesla inventory appears absurdly overvalued even earlier than contemplating dangers corresponding to a extra aggressive electrical automobile (EV) market hurting revenue margins throughout the sector, as we noticed in Tesla’s woeful first quarter outcomes.
Tesla may very well be a discount, however a really high-risk one
But when Tesla, which final yr delivered near 1.8m automobiles, will not be a automobile firm, then what on earth is it?
One method – and it’s one some Tesla buyers have lengthy taken – is that the automobile is simply the beginning of issues for the agency. The software program used to develop self-driving automobiles may assist in an array of different actions too.
Tesla’s experience in energy technology and storage has enabled it to construct a enterprise dedicated to large-scale installations. That supplied a uncommon vibrant 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 “providers and different revenues” quarterly income, displaying that software program actually might 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 could but be forward.
It has a observe document of delivering unimaginable income progress. The present bump within the highway doesn’t imply administration won’t pull that off once more, by which case the present Tesla inventory value may very well be a long-term discount.
Funding within the inventory market at all times entails taking a view on what may occur in future. I do suppose Tesla may but surge in worth.
However quite a lot of the potential drivers for that stay unproven and extremely speculative for now. Given such massive dangers, the present Tesla value is simply too excessive for my consolation so I can’t be investing.
