One Stock Analyst Calls Tesla's Valuation 'Unreal' — Should You Sell?

Tesla’s Future in the EV Market and AI Space

Elon Musk has stepped away from his role as the leader of the Department of Government Efficiency (DOGE) and returned to his position as CEO of Tesla, which is now a major player in the electric vehicle (EV) market. This shift brings with it a variety of storylines that investors and industry observers are closely following. From recent quarterly results to the development of an affordable model, robotaxi timelines, and even the opening of a retro-futuristic Tesla Diner & Drive-In in Hollywood, there's plenty to discuss.

One of the most significant topics is what the future holds for a company that is increasingly involved in both car manufacturing and artificial intelligence (AI) and robotics. Supporters of Tesla are excited about Musk’s return, the company’s ambitions in the robotaxi space, and its growth potential. However, many analysts remain skeptical about these developments.

The High Valuation of Tesla Stock

During a recent appearance on Yahoo Finance’s Opening Bid, Chad Morganlander, senior portfolio manager at Washington Crossing Advisors, raised concerns about Tesla’s high stock price and its robotaxi future after a recent launch event in Austin. He described the event as "a lot of jazz hands" and noted that Tesla's stock trades at ten times revenue, which he called "insane." Morganlander prefers Waymo, a self-driving taxi service developed by Alphabet since 2009.

As of now, Tesla’s stock has a trailing price-to-earnings (P/E) multiple of around 185 and a forward P/E near 164, according to Yahoo Finance. In comparison, the forward P/E ratio for the S&P 500 is just under 23. Until Tesla makes significant progress in the robotaxi market, it may continue to be seen as overvalued. Given the company’s history of making bold promises followed by delays, investors are growing anxious.

Edward Corona, a veteran trader and founder of The Options Oracle newsletter, acknowledges that Tesla has always traded more like a story stock than a traditional automaker. However, he believes that the story must eventually catch up to reality.

Investor Sentiment and Future Outlook

Tesla recently reported weaker-than-expected second-quarter earnings, causing its shares to drop by 8% on July 23. With the company focused on ride-sharing services and self-driving technology, investors should not expect significant growth in deliveries in 2025. Instead, they should anticipate increased competition.

Decreases in government support for EV makers have led Musk to suggest that "a few rough quarters" lie ahead. Additionally, Musk's recent public split from President Donald Trump and his administration, along with other controversies, have added to the uncertainty surrounding the company.

Corona notes that Musk has not helped his own cause, citing distractions, lawsuits, and erratic public comments as factors that add headline risk for investors. Despite this, current Tesla stockholders should consider holding or adjusting their shares, according to TipRanks and Zacks. Corona agrees with this approach.

"If I were holding Tesla right now, I wouldn’t hit the sell button blindly — but I’d definitely be trimming into strength and locking in some gains," he said. "No harm in taking something off the table when things start feeling a little overheated."

Conclusion

Investors who have held onto Tesla stock for a long time understand that uncertainty comes with the territory. While the company's future in the EV market and AI space remains promising, the path ahead is filled with challenges. As the market continues to evolve, the key will be whether Tesla can deliver on its ambitious goals and justify its high valuation.