This was an understandable reaction to Tesla’s latest set of results: “4Q miss on weak price/mix, outlook vague: stock trades up (is this a car company?).”
That was Adam Jonas, Morgan Stanley’s motoring analyst, kicking off his report. The basic elements are all there: Tesla’s vehicle sales, pricing and margins were awful and CEO Elon Musk’s various pronouncements were characteristically vague. Yet the stock popped.
Jonas concludes that this dismal quarter was “emblematic of a company in the transition from an automotive ‘pure play’ to a highly diversified play on AI and robotics”. The next day he cut 2025 forecasts for vehicle deliveries, pricing and margins, battery deliveries, and overall earnings. The price target was unchanged at US$430 (Tesla closed on Friday at about $404 with a market cap of $1.3-trillion).
Dissonance between Tesla’s financials and stock price is hardly new, but it has reached new heights. Analysts tasked with covering a car company asking out loud if it is actually a car company signals how unmoored things have become.
In one sense — and not a good one — Tesla isn’t a car company. I wrote here about the weakness of the latest earnings, what with big sales of zero-emission credits and a bitcoin gain. But factor in interest income on cash balances as well and you could be forgiven for thinking Tesla ended 2024 being more like a money manager specialising in crypto, green credits and treasuries with a sideline in making cars.
Pivoted hard
Except, of course, Tesla is a car company. Making and selling electric vehicles — plus selling the regulatory credits they generate and providing services like parts and EV charging — generated 90% of revenue and 85% of gross profit last year. Tesla’s energy storage arm has grown strongly but is still relatively small and the trend in its unit margins — down 30% in the past three quarters alone — suggests it must outrace the commodification that haunts any battery maker.
The problem is that motoring stocks tend to trade on single-digit multiples rather than Tesla’s triple digits. Worse, Tesla’s car sales stopped growing last year (and Musk notably didn’t reiterate the 20-30% growth figure for 2025 he voiced all of three months ago). Assume 90% of next year’s consensus earnings figure is automotive-related and put a car premium multiple on it for kicks — say, the 49x sported by Ferrari, a company that has far higher margins. Even then, Tesla’s car business would be worth $133/share, a third of the current price.
Read: From Cape Town to Kruger in a solar-powered Tesla
Hence, only a year after hosting an entire day built around the promise of a vastly cheaper EV, Musk pivoted hard in 2024 not just to his existing robo-taxi narrative but also artificial intelligence and the Optimus humanoid robot — anything but (human-operated) cars, essentially. These are all internal projects rather than, as yet, actual businesses.
Share prices look forward rather than back, so many would argue that despite terrible car sales results, Tesla’s vast valuation is justified by future profits on all the tech stuff. Bulls can point to Musk’s prior achievements, especially the mainstreaming of those EVs and his non-Tesla endeavors, notably SpaceX.
But you generally discount projected cash flows to reflect the risks. Musk has achieved real things but his track record of making grandiose claims that don’t pan out or arrive very late is undeniable. Take autonomous vehicles, where Musk has been touting the imminent arrival of Teslas that could drive themselves coast to coast for the best part of a decade. This has not happened even as rival Waymo has launched actual robo-taxi services in several cities and is now reportedly ready to start testing in 10 more. Tesla bulls are, nonetheless, swooning over Musk saying, yet again, that a real robo-taxi service will arrive soon, in Austin — something that may or may not happen on time and is, in any case, vastly scaled back in ambition compared to prior pledges of robo-taxis everywhere.
So how much discounting is going on? Not much. In another earnings reaction, Evercore ISI noted tactfully that analysing the quarterly numbers had become “increasingly problematic” because Tesla’s actual current businesses account for less than 40% of its market cap. Another way of saying it would be to call Tesla overvalued; and, to its credit, Evercore has a neutral rating and a price target of $275.
Things are sunnier at RBC Capital, with a target of $440 and the equivalent of a “buy” rating. It values Tesla’s robo-taxi business at $879-billion by forecasting revenue in 2040, putting a 10x multiple on that, and then discounting back at a 7.5% rate. Consider that 2040 is as far away from today as 2010. A huge multiple of revenue and a 3% risk premium over 10-year treasury yields seems somewhat laid back.
Indefatigable optimism is endemic. A year ago, 37% of analysts tracked by Bloomberg rated Tesla, which traded at 57x forward adjusted earnings, a “buy”. Since then, despite poor financial performance and a shifting strategy, the stock has more than doubled, all of which is owed to an expansion in the multiple to 140x. Yet today, 48% rate Tesla a “buy”.
In a sense, many analysts are, like momentum-chasing investors, along for the ride rather than steering it. Price targets tend to follow, rather than set the direction, of Tesla’s price, although there was a decent correlation with earnings estimates for much of the past five years. The correlation weakened in 2024, however, breaking down completely after the election of Musk’s new friend, President Donald Trump.
‘Trump bump’
Tesla is a car company. Its stock is something else entirely. The “Trump bump” captures this well, since the president clearly threatens the subsidies supporting Tesla’s cash flow but is seen as being possibly — if questionably — useful with regard to autonomous driving regulation. That vague option on the White House, which also incorporates related hopes of an enabled Musk leading a US revolution in AI and robotics, is currently valued at about half a trillion dollars, based on gains to date. If anything, Tesla’s stock is more akin to that other Trump-buoyed phenomenon, bitcoin; tethered to nothing but vibes. Tesla has actual cash flow, of course, but numbers don’t lie. Its main asset at this point is pure belief. — Liam Denning, (c) 2025 Bloomberg LP
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