It's been a chaotic week for investors. The Dow Jones, the S&P 500, and the Nasdaq Composite all saw one of the worst multi-day stretches in years. This comes as a trade war escalated between the U.S. and its major trade partners, with China and the E.U. responding in kind to President Donald Trump's steep, sweeping new levies on goods from nearly every country in the world. To say markets were nervous is an understatement. That's now given way to optimism after Trump lowered tariffs on all partners save for China.
Amid the tumult, some investors are looking to buy stocks at what could be a discount. Could Tesla (TSLA 1.53%) be the right pick? The electric vehicle (EV) pioneer's stock has slid more than 6% since last Wednesday, when the tariffs were announced, before rebounding significantly. Still, Tesla stock is down nearly 45% from its high in January.
That's despite Tesla actually being profitable -- not something many of its EV competitors can say -- an innovator in autonomous driving and robotics, and its energy storage business growing rapidly. So, is Tesla the right opportunity right now?
Tesla is many things, but first and foremost, it's a carmaker
While the company is working on several innovative technologies that could prove transformative, the fact is, at present, it is primarily a car manufacturer. Of the $97.7 billion in total sales it reported last year, more than $77.1 billion came from sales of its lineup of cars.
While EV rivals Rivian and Lucid Group both struggle to turn a profit, Tesla ranks as one of the world's top 10 most profitable automotive companies. It's a far cry from the hugely profitable Toyota, but Tesla's bottom line beats out American producers GM and Ford, among others.
TSLA Net Income (TTM) data by YCharts. TTM = trailing 12 months.
This is despite lower sales. Tesla's margins are higher than its domestic competition, allowing the company to deliver top-tier earnings despite total sales of roughly half that of GM and Ford. That means Tesla has significant headroom to grow sales -- good news for investors.
Sales are slipping
Here's the thing: Tesla isn't growing sales. In fact, its vehicle sales are shrinking. The company's latest delivery report showed it had delivered just 336,681 vehicles in the first quarter, making it the worst quarter for deliveries since 2022. We are still several weeks out from Tesla's earnings call, in which more details will come to light, but as of Tesla's 2024 report, the once double-digit year-over-year (YOY) revenue growth the company enjoyed is gone. Its sales grew by less than 1% from 2023 to 2024.
This trend may be accelerating. Targeted reports from individual markets around the globe show Tesla's car sales tanking while overall EV sales soar. Tesla's E.U. sales dropped 45% in January, while the EV market rose 37% YOY. The company's sales in China dropped 11.5% YOY in March, while sales in France hit their lowest level since 2021.
Why? While these kinds of trends are always multivariate, it's impossible to ignore CEO Elon Musk's foray into politics at home and abroad. Over the last year, the Tesla chief has become an increasingly polarizing figure. As the head of the newly created Department of Government Efficiency (DOGE), Musk has overseen a campaign of controversial cost-cutting at home while inserting himself in the local politics of countries from Germany to the U.K.
His actions have caused, as JPMorgan Chase analyst Ryan Brinkman puts it, "unprecedented brand damage" that could be the major driver in Tesla's sliding sales. At the same time, Tesla is facing stronger competition from legacy manufacturers and the Chinese EV maker BYD. The lead it once enjoyed in the eyes of consumers as the pioneer of the EV industry has largely evaporated.
Tesla has a valuation issue
Even if sales weren't struggling to the degree they are, there is a major issue with the stock's valuation. The company's stock trades at more than 130 times earnings. That is extremely high for any kind of company -- tech included -- let alone a car manufacturer. Look at how much higher Tesla's price-to-earnings (P/E) ratio is than its competition's.
TSLA PE Ratio data by YCharts. PE Ratio = price-to-earnings ratio.
Now, I freely admit that there is more to Tesla than simply making cars -- its energy storage business is growing at a healthy clip at the moment. The company is working to deliver self-driving functionality to its customers. Musk touts a future filled with his company's robotaxis and personal robots. The company has its hand in many pies that, one day, could be very lucrative. This doesn't change that, at the moment and for the foreseeable future, Tesla is a car company. The vast majority of its revenue comes from selling the cars it produces.
The promise of future transformative technologies can distract from this simple fact. So, if you choose to invest in Tesla, know that you are buying a future that is far from guaranteed. The stock price is far too high for what is primarily a car company, especially one seeing its sales growth stagnate. I have serious doubts that Tesla will deliver on Musk's promises in any kind of meaningful time frame or, for that matter, at all. Tesla stock is not a buy now.
