Is Tesla Overvalued? Writer: Harshul Agarwal. Date Written: 28/11/2024

Tesla Inc (NASDAQ: TSLA), has been dominant in the electric vehicles (EV) market and is

at the forefront of being part of the shift towards a green automobile industry. However, its

stock valuation has been debated among analysts and investors for years—trading at $332.89

per share, its market cap stands at around $1.04 trillion as of 28th November 2024. What

worries investors is Tesla’s valuation being significantly higher than any other automobile

maker, despite its production levels being a fraction of its volume. To decide if Tesla is

overvalued, we can examine financial metrics, potential growth, market sentiment and other

broader factors.

Valuation metrics are often not where Tesla shines and point to an overvaluation, where its

P/E and P/S ratio are significantly higher than automobile competitors like General Motors

(NYSE: GM), and Ford (NYSE: F). Basic ratios such as these suggest investors pay a

premium for holding Tesla stock in hopes of higher than anticipated future earnings. Further

metrics also show that based on Tesla’s record profits of 17.66 billion dollars in 2023, it

would take the company over 58 years to earn its profits to match its valuation, whereas, on

the other hand, the average company on the NASDAQ takes 25 years to do the same.

Industry-leading analysts such as Morningstar further contradict this valuation by estimating

Tesla’s current valuation to be no higher than USD 215 per share, thus slicing its market cap

by just more than a ⅓. This highlights how traditional financial models often do not align

with the market expectations for Tesla's potential future. In addition, growing competitors

from EV manufacturers such as China’s BYD, are emerging as strong competitors,

particularly in international markets, which may further dampen Tesla’s earnings.

While the valuation may seen as excessive based on the financial metrics, it is underpinned

by the growth trajectory of the company as it expands into different markets such as pickup

trucks and delivery trucks. Furthermore, Tesla continues to rapidly expand its charging

network which is expected to generate revenue as firms hope to adopt the same network by

paying a fee rather than investing in their own which can cost them a fortune. Moreover,

Tesla has beta-tested its Full Self-Driving technology and reported it as a success. This

further expands Tesla's earning potential as it opens the possibility of generating a recurring

subscription-based revenue system.

All of the above being possible is often credited to one man, Elon Musk, who is now

regarded as a global leader in technology. Musk’s brand and influential following have made

him an effective marketer of his products, however, his unpredictable behaviour and now

divided attention between his multiple ventures SpaceX, and X (formally known as Twitter),

have questioned his overall ambitions. Elon has now further aligned with Donald Trump,

America's 47th president, by joining the Department of Government Efficiency, a reason for

Tesla’s recent boost in stock price, as Tesla was a stock to bet on for growth given Musk’s

endorsement of Trump pre-elections. Therefore, while Elon Musk’s leadership being the

reason for Tesla’s success remains unquestioned, it is considered that Tesla’s long-term

strategic focus may benefit from a change in CEO.

Overall, Tesla’s valuation in the market represents a fight between its ambitious growth

potential and market speculation. While traditional financial metrics suggest an

overvaluation, some market leaders suggest there’s room for more growth as the company

continues to lead in innovation and energy solutions. Ultimately, whether Tesla is overvalued

will depend on one's perspective on whether Tesla can live up to deliver on its ambitions. For

cautious investors however, this stock is one to avoid given its volatility, for ones looking to

take a risk, the stock may seem like the one to pick with the imagination of Tesla as the

forefront of future transportation and energy solutions

 References:

Goldstein, S. (2024). Tesla: Trump Election May Solidify Near-Term Tesla US EV Leadership. [online] Morningstar, Inc. Available at: https://www.morningstar.com/stocks/tesla-trump-election-may-solidify-near-term-tesla-us-ev-leadersh ip [Accessed 28 Nov. 2024].

Shefrin, H. (2024). How Overvalued Is Tesla’s Stock, Really? [online] Forbes. Available at: https://www.forbes.com/sites/hershshefrin/2024/04/22/how-overvalued-is-teslas-stock-really/.

Hataf Capital (2024). Tesla’s Overpromised Future And Overvalued Stock. [online] Seeking Alpha. Available at: https://seekingalpha.com/article/4732749-teslas-overpromised-future-and-overvalued-stock [Accessed 28 Nov. 2024]