Tesla (NASDAQ: TSLA) reached a new record high shortly after President Donald Trump’s election win in November. Investors were optimistic that a more favorable regulatory environment could expedite the company’s plans for autonomous robotaxis and humanoid robots. CEO Elon Musk envisions these innovations positioning Tesla as the world’s most valuable company.

Musk has gone even further, suggesting Tesla could rival the combined market value of the next five largest companies—Apple, Microsoft, Nvidia, Alphabet, and Amazon—currently valued at $11.8 trillion.

However, Tesla’s stock is currently trending downward. It has decreased by 47% from its all-time high, facing several challenges within its core business which could result in a potential decline of an additional 50% or more.

Image source: Tesla.

Decline in Electric Vehicle Sales

While Musk may be concentrating on autonomous vehicles and robotics, electric vehicle (EV) sales constitute 72% of Tesla’s total revenue, and they are currently experiencing a downturn. In 2024, sales dipped by 1% to 1.79 million cars, with a more severe 13% decline recorded in the first quarter of 2025.

This slump in deliveries resulted in a 20% year-over-year drop in Tesla’s automotive revenue. Additionally, its overall net income plummeted by an alarming 71%. Several factors contribute to the company’s struggles: increased competition from low-cost EV producers and a growing consumer disenchantment with the Tesla brand, particularly due to Musk’s political activities.

Among the competition is BYD, a China-based EV manufacturer that sells cars for as low as $10,000 domestically. BYD is expanding into Europe, posing a substantial threat to Tesla’s previously established market share.

Musk’s political engagement has drawn scrutiny as well. He has been leading the Department of Government Efficiency (DOGE), aimed at cutting wasteful spending to reduce the national debt. This involvement has led to layoffs of government employees and funding cuts to programs such as the U.S. Agency for International Development (USAID), inciting protests at Tesla dealerships worldwide.

On a positive note, Tesla plans to introduce lower-cost EV models later this year. Musk has also indicated that he will reduce his time at DOGE starting in May to devote more attention to Tesla’s operations. These steps could be vital in recovering from recent setbacks.

Future Revenue from Autonomous Driving and Robotics

Tesla’s Cybercab robotaxi is intended to operate autonomously within a ride-hailing network, generating new revenue for the company. However, mass production is not expected until next year, and it may take additional time before it becomes a significant contributor to earnings.

The full self-driving (FSD) software is still awaiting approval for unsupervised use on public roads, hindering the Cybercab’s operational capabilities. This limitation places Tesla at a disadvantage compared to competitors like Waymo, who are already conducting 250,000 paid autonomous rides weekly.

Despite this lag, if the FSD secures regulatory approval, Tesla could leverage its extensive fleet to offer lucrative autonomous ride-hailing services. According to Musk, the Cybercab costs around 80% less to produce than Waymo’s vehicles, giving Tesla a competitive edge once fully scaled.

Another ambitious project is the Optimus humanoid robot. Musk plans for Tesla to manufacture thousands for use in its factories this year, predicting production could exceed 1 million units annually by 2029. These humanoids aim to handle dangerous or repetitive jobs, also finding utility as household assistants.

Musk has projected that by 2040, there could be more humanoid robots than humans, potentially generating a staggering $10 trillion in revenue over the long term.

High Valuation Compound Risks

While Tesla might have aspirations of becoming the most valuable company due to FSD, the Cybercab, and Optimus, it currently confronts significant valuation challenges.

The company’s trailing 12-month earnings per share (EPS) stands at $1.74, resulting in a price-to-earnings (P/E) ratio of 148.6, making it five times more expensive than the Nasdaq-100 index, which trades at a P/E of 27.1. Additionally, Tesla is significantly more costly than the five competitors it aims to eclipse.

NVDA PE Ratio data by YCharts.

In summary, Tesla’s high valuation could impede any near-term growth. Even if Musk’s long-term vision holds true, investors might want to reconsider paying a premium for Tesla stock today, especially with the prospect of looming revenue from autonomous initiatives potentially years away. If EV sales continue to decline, Tesla might see falling earnings, further inflating its P/E valuation.

Consequently, although Tesla shares have already decreased by 47% from their peak, they carry the risk of an additional plunge of 50% or more to align its valuation with major tech peers. For context, a 76% drop would be necessary just to match Nvidia’s P/E ratio, a company known for rapid growth.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and Tesla. The Motley Fool recommends BYD Company and recommends long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.