Tesla (TSLA +0.58%) has been on an absolute tear, with shares nearly doubling over the past few months. Investors expect big things from the electric vehicle (EV) company over the coming years. It has continually innovated, pushing into new markets like autonomous vehicles and humanoid robotics.
Stock price momentum can be powerful. How high shares ultimately go is anyone's guess. Ultimately, the business's fundamentals will either support its rising share price or act like gravity and pull it down to earth.
Should you buy Tesla stock while it's trading under $450 per share? Here is what you need to know.
It's clear what's driving Tesla's stock higher, and it's not the EV business
One of the most common arguments supporting the stock is that the company isn't like other automotive manufacturers. Due to its other segments, some investors consider it a technology company. The idea is that the planned Cybercab (and an autonomous vehicle fleet) and Optimus (humanoid robotics) could each represent vast opportunities over the next decade.
NASDAQ: TSLA
Key Data Points
I would guess that is what has driven the stock's strong performance. CEO Elon Musk has aligned himself well with the Trump administration, which could theoretically help Tesla navigate the legal and regulatory landscape to launch its autonomous ride-hailing business. Since the Nov. 5 election, the stock price is up nearly 70%.
Musk estimates ride-sharing will begin in Texas and California this year, with the Cybercab entering volume production in 2026.
He also hopes to begin selling Optimus robots in 2026. The company is still developing the robot's localized artificial intelligence (AI), which allows it to read and process its surroundings. This technology is similar to its full self-driving (FSD), and Musk recently said that Tesla now has the appropriate computing capacity to continue developing it.
These are exciting opportunities but come with questions
Musk believes that Tesla's long-term value is far more dependent on these emerging segments than on its existing automotive business. However, investors should be careful about how disconnected they let the future get from the present. The financial reality is that its vehicle business, which just saw its annual production volume drop for the first time in 2024, still generates virtually all of the company's revenue and profits.
There is also a clear motivation to label it as a technology company rather than an automotive business. Its valuation far exceeds that of any of its peers. For example, the stock currently trades at over 15 times sales. Toyota presently generates higher gross profit margins than Tesla, but trades at a price-to-sales multiple (P/S) of less than 1. Yes, Tesla is growing faster, but does that justify such an extreme valuation gap?
Data by YCharts.
What's the takeaway? Tesla has an exciting technology upside, but it's already baked into the share price. Investors also don't (and can't) yet know:
- Whether Tesla will deliver on these products.
- When they might meaningfully affect the company's financials.
- How profitable they will be.
There's a realistic scenario in which Tesla executes masterfully over the next two or three years, brings these products to market, and the stock goes nowhere while the company's financials catch up to the valuation. There's also a scenario in which this rollout takes longer than expected or fails altogether, and the market stops supporting such a lofty valuation.
Should you buy Tesla stock right now?
For all anyone knows, Tesla's Cybercab and Optimus will be highly profitable from the start, and the stock will only go higher from here.
Sometimes, investing is about making an educated guess based on various outcomes. Given the facts known today, I think there are more potential outcomes where the stock generates poor returns from the current prices than vice versa. I believe Tesla is more than a vehicle manufacturer, but it doesn't warrant buying shares at any cost.
The stock is not a buy at anywhere near $450 per share -- at least not until the financial fundamentals justify it.
Investors who want to own Tesla might see better opportunities if the broader market cools off. Therefore, patience is warranted in order to allow the company's current momentum to play out. If you're afraid of missing the boat, you can buy a little at a time, slowly, leaving some cash handy for any potential decline.
