After Tesla Inc. (TSLA-Q) reported disastrous quarterly financial results this week, Elon Musk vowed to step back from his government cost-cutting efforts in Washington and devote more time to leading the EV maker.
Oh dear.
The mainstream bullish case for Tesla has traditionally rested on three pillars: corporate leadership that basked in the aura of genius, U.S. government policies that incentivized electric vehicles and enthusiastic consumers who delivered strong car sales.
Now, these pillars are wobbling, leaving Tesla’s steep equity valuation out of line with the company’s slumping performance.
This week, the EV maker reported that its first-quarter profit fell more than 70 per cent from the same period last year and withdrew 2025 production guidance owing to tariff-related uncertainties.
These “are not the hallmarks of a growth company, which, in our view, portends significant downside risk to Tesla’s rarefied growth company multiple,” said Ryan Brinkman, an analyst at JPMorgan Chase & Co., in a note.
The stock trades at a perplexing 125-times reported earnings, according to Bloomberg.
The valuation is considerably higher than those of all of Tesla’s Magnificent Seven peers – the elite group of U.S. tech superstars – including Nvidia Corp. (NVDA-Q), Meta Platforms Inc. (META-Q) and Alphabet Inc. (GOOGL-Q).
Stalwart investors are likely counting on a quick turnaround that rests on Mr. Musk’s ambitions.
Tesla’s chief executive officer said during a call with analysts that he will spend fewer days in Washington, where he oversees the Department of Government Efficiency, or DOGE, starting next month.
He will return to Tesla as the company moves toward several exciting rollouts, including a lower-cost EV this year, autonomous robotaxis next year and the production of a million Optimus humanoid robots a year by 2030.
For anyone who buys into Mr. Musk’s long-term vision, where splashy technological advances assume a bigger role than EV manufacturing, these launches help justify the stock’s valuation.
Tom Narayan, an analyst at RBC Capital Markets, believes the robotaxi business, in particular, will generate strong growth given that vehicles steered by artificial intelligence are safer and promise to ease urban congestion if they supplant private car ownership.
He estimates that global annual revenues from this business will rise to US$196-billion by 2040, making it more than five times as valuable as the EV manufacturing business when revenues are discounted back 15 years.
Based on this approach and the value of other components, including robots and energy storage, he thinks Tesla’s stock is worth at least US$307, or 20 per cent more than the current price.
The risk is clear, though: A forecast with a 15-year outlook, for a product that hasn’t launched, requires considerable faith on the part of investors.
While Mr. Musk’s central role at Tesla may have instilled confidence among investors in the past, he is now a source of concern.
His political profile may be exerting a drag on EV sales globally.
In aligning himself with U.S. President Donald Trump and supporting right-wing movements outside the United States – including Germany’s far-right AfD party – he has alienated some current and prospective EV owners who equate electric vehicles with liberal values.
In the first quarter, Tesla’s automotive revenue fell 21 per cent, to US$12.9-billion. Profit margins on auto sales narrowed to 16.2 per cent from 18.5 per cent last year, as prices came down.
Adding to the concerns, Mr. Musk is not backing down.
In a call with analysts this week, he said Tesla’s first-quarter results were affected by factory shutdowns related to updating the company’s popular Model Y vehicle.
He also blamed recent protests against Tesla – some of them involving vandalism of cars and showrooms – on Americans who stand to lose from his cost-cutting efforts in Washington.
“The actual reason is that they’re receiving the waste and fraud, wish to continue to keep receiving it. That is the real thing that’s going on here, obviously,” Mr. Musk said.
If that sounds like a stretch, investors must also be wondering if consumers who reconsidered buying Tesla EVs will warm to the company’s robots and robotaxis when Mr. Musk devotes more time to the company.
Tesla also faces risks from U.S. tariffs, especially if they contribute to a decline in global economic activity.
And China is becoming impossible to ignore as a serious competitive threat as it leads the world in new battery technology that can increase an EV’s range and reduce charging times.
Mr. Musk’s return to Tesla is good news for anyone who thinks he’s a visionary leader. Others, though, might want to ask themselves why the stock is priced for global dominance.