No one will argue with the simple fact that Tesla (TSLA +4.31%) has been a spectacular investment. In the past five- and 10-year periods, its shares have accelerated 396% and 1,640% higher, respectively (as of April 15). Investors have bet big on founder and CEO Elon Musk's vision.
But sentiment is shifting to the downside. Propelled by a stomach-churning 50% drop from its record high, this top electric vehicle (EV) stock now trades below $250 per share. Does this make it a smart buying opportunity?
Investors should understand that there are valid arguments on both sides of the aisle when it comes to Tesla deserving a place in your portfolio.
Disrupting the auto industry
Tesla is currently the world's 11th most valuable enterprise, thanks to a market cap of $757 billion. You don't see car companies generate this type of buzz from the investment community. Credit goes first and foremost to Tesla's focus on innovation and disruption to make a dent in the auto industry. Combining well-designed cars with proprietary software has worked well.
In the U.S., Tesla commands a dominant market share of 44%. Globally, that figure is still high, at less than 20%. This leading position supports its brand recognition. Furthermore, having meaningful scale and adoption has helped Tesla build strength in critical other areas, like its charging network and its manufacturing capabilities.
The company's long-term goals also introduce upside. Musk hasn't shied away from stating his objective to one day launch a worldwide robotaxi service that he believes will see "quasi-infinite" demand. This depends on advancements with full self-driving (FSD) technology, but investors continue to be excited about the prospects.
It's also worth mentioning Tesla's energy generation and storage segment. Revenue here more than doubled in Q4, much faster than the overall business. Over time, this is poised to become a vital part of Tesla's financial performance, particularly as the world slowly moves toward a sustainable future.
NASDAQ: TSLA
Key Data Points
View the business with clear eyes
Tesla certainly has no shortage of arguments that will support the bull case. But there are also notable factors that give the bears enough fuel to fight back.
Tesla's financial performance has transitioned away from the fast lane. Gone are the days of monster growth. Automotive revenue declined 6% in 2024, driven by the first yearly drop in car deliveries. Deliveries then fell double digits in the first quarter of 2025.
Margins have also been under pressure. Higher interest rates, economic uncertainty, and intense competition all play a role here. Tesla's market share is under attack, and the pricing power it once flexed might be a thing of the past.
Innovation is at the heart of what Tesla does. And the fact that the business is trying to push the needle and create a safer and more sustainable world, particularly as it relates to transportation, is enviable. However, introducing a successful robotaxi service is far from a guarantee.
Tesla's FSD tech still requires the supervision of a human behind the wheel. It's anyone's guess when we'll see an unsupervised version that is widely commercialized. There are many barriers that still need to be cleared. The technology needs to evolve to be safer than human drivers are today. Regulations need to be supportive. And perhaps the hardest nut to crack, human beings must feel safe.
To its credit, though, Tesla definitely has the data to continue training Dojo, its artificial intelligence (AI) supercomputer. This makes it one of the leaders in the space.
This brings us to the valuation. Tesla's stock has always been expensive. It currently trades at a price-to-earnings ratio of 118. The investment community bought into Musk's narrative about an extremely bright future for the business.
Unfortunately, the company as it looks today does not even come close to justifying the valuation. Tesla might have a visionary CEO at the helm, unmatched technological capabilities, and access to top talent, but investors should avoid buying the stock. This is true even though it trades below $250.
