Tesla's (TSLA +1.74%) third-quarter fiscal 2025 revenue performance was impressive, with the company reporting year-over-year growth for the first time in three quarters. Revenue was up 11.6% year-over-year to $28.1 billion, reflecting strong vehicle deliveries across key markets and growing momentum in the energy storage business. Management has also highlighted several emerging growth catalysts, beyond electric vehicles and batteries, including robotaxis, Tesla-designed custom artificial intelligence (AI) chips, and the Optimus humanoid robot.
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Yet, more analysts are increasingly becoming cautious about the stock's near-term growth trajectory, and the consensus rating now stands at hold.
The most crucial reason for Wall Street's bearishness is obvious: Tesla's valuation appears significantly richer than that justified by its fundamentals.
Expensive valuation
Tesla is trading at 292 times trailing earnings and 198 times forward earnings estimates (as of Dec. 3), a valuation that looks extremely stretched. Much of the potential future growth seems already priced in, especially given that Tesla still derives most of its revenue from its automobile business. Hence, the company's valuation, which is more like that of an asset-light software company with high margins and recurring revenue streams, seems very high.
NASDAQ: TSLA
Key Data Points
Tesla's solid top-line performance in the third quarter has not translated into bottom-line strength. The company's operating margin was down by 5 percentage points year-over-year to 5.8% in the third quarter. Tesla has faced increased expenses associated with higher restructuring costs, AI chip design efforts, legal expenses, and increasing compensation. With all vehicles manufactured in China, the company also faces the negative impact of tariffs, which further weighs on profitability.
A recent U.S. government announcement to accelerate the robotics and automation sectors could prove to be a meaningful positive for Tesla's Optimus humanoid robotics project. Yet, the commercial timelines for this and many of the company's other high-value initiatives are uncertain. These projects are capital-intensive, depend on significant advances in AI technology, and require complex regulatory approvals.
Hence, it has become difficult for Wall Street to accurately model the company's future financial trajectory, further exacerbating the bearish sentiment.
