Tesla Faces Challenges Amid High Valuation and Declining Deliveries

Tesla (NASDAQ:TSLA) stock appears relatively expensive at its current price of around $250. Significant risks loom for the company, including potential tariffs on imports that could push the economy toward recession. Additionally, the ongoing trade conflict between the United States and China, coupled with the brand challenges stemming from CEO Elon Musk’s political involvement, could further jeopardize Tesla’s performance. Currently, Tesla’s stock is down by about 47% from its peak in December 2024, with potential for additional declines. Historically, during downturns, Tesla has exhibited worse performance than broader market indices. For instance, in 2022, Tesla stock fell 73.6%, compared to a peak-to-trough decline of just 25.4% for the S&P 500. Investors should brace for possible further downturns.

Declining Deliveries and Increased Competition

Tesla’s vehicle deliveries are trending downward. In the first quarter of 2025, the company reported 336,681 vehicle deliveries, a 13% decrease from the previous year. The trade tensions with China have escalated, resulting in President Donald Trump applying a 125% tariff on Chinese imports while China retaliates with an 84% duty on American goods. While Tesla manufactures vehicles in China at its Shanghai facility, the increasing anti-American sentiment and Musk’s close ties to President Trump may negatively impact sales. Notably, China made up 21% of Tesla’s revenue last year, and the Shanghai factory contributes significantly to production capacity, with an annual output of over 950,000 vehicles. A decline in sales or factory utilization could adversely affect profit margins, particularly as competition in China intensifies with local automakers gaining market share through innovative and competitively priced vehicles.

Mixed Prospects in the U.S. and Europe

In the U.S., Tesla may benefit from launching its Robotaxi in Austin and refreshing the Model Y. However, negative brand perception due to Musk’s political activities is dissuading many progressive customers. Although Tesla has a cost advantage over competitors reliant on manufacturing in Mexico due to new tariffs, the company still sources many parts from China and Mexico, which could inflate costs. The outlook in Europe is similarly bleak, where Tesla has faced declining sales as Musk endorsed the far-right AfD party during elections in Germany.

Statistics show that Tesla’s overall market share in 15 European countries fell from 17.9% in the first quarter of 2024 to 9.3% in the same quarter this year, signaling significant challenges, according to EU-EVs.com.

Valuation Concerns Versus Market Benchmarks

Tesla’s valuation metrics present a stark contrast against broader market indicators. The company’s price-to-sales (P/S) ratio stands at 8.9, whereas the S&P 500 is at 3.2. Similarly, the price-to-operating income (P/EBIT) ratio for Tesla is 112.7 compared to 24.3 for the S&P 500, and Tesla’s price-to-earnings (P/E) ratio is 122.6, while the benchmark registers at 24.3. This data indicates that Tesla may indeed be priced at a premium relative to its market peers.

Revenue Growth and Profitability

Tesla has experienced revenue growth over recent years. The company’s top line has averaged an increase of 23.7% annually over the last three years, while the S&P 500 has only seen 6.3% growth. Over the past 12 months, Tesla’s revenues grew by 0.9%, from $97 billion to $98 billion, compared to a 5.2% increase for the S&P 500. Furthermore, Tesla’s quarterly revenues rose 2.1% to $26 billion from $25 billion year-over-year, contrasted with a 5.0% growth for the broader index.

Profit margins at Tesla are around the median level for companies within the Trefis coverage universe. Over the past year, Tesla reported an operating income of $7.8 billion, resulting in an operating margin of 7.9%, compared to the S&P 500’s 13.0%. The operating cash flow during this period was $15 billion, which translates to an operating cash flow-to-sales ratio of 15.3%, slightly below the S&P 500’s 15.7%.

Financial Stability Assessment

Tesla’s balance sheet appears robust. The company’s total debt was reported at $14 billion with a market capitalization of $811 billion (as of April 10, 2025), yielding a very favorable debt-to-equity ratio of 1.6% when stacked against the S&P 500’s 19.0%. Notably, cash reserves amount to $37 billion, accounting for 30% of Tesla’s total assets of $122 billion, which signifies strong liquidity compared to the S&P 500’s cash-to-assets ratio of 14.8%.

Evaluating Downturn Resilience

Historical performance reveals that TSLA stock struggles more than the S&P 500 during downturns. For example, during the inflation shock in 2022, TSLA fell by 73.6%, while the S&P 500 dropped only 25.4%. Although TSLA fully recovered its pre-crisis peak by December 2024, it has since experienced significant volatility, mirroring trends seen during the COVID-19 pandemic, where the stock fell 60.6% from February to March 2020 before rebounding.

Conclusion: The State of TSLA Stock

In summary, Tesla’s performance can be summarized as:

• Growth: Strong
• Profitability: Neutral
• Financial Stability: Extremely Strong
• Downturn Resilience: Very Weak
• Overall: Neutral

Despite Tesla’s strong performance and financial stability, its high valuation suggests that the stock is relatively expensive at present, supporting the view that it may not be the best buy right now. To mitigate these risks, investors might consider the Trefis Reinforced Value (RV) Portfolio, which has historically outperformed its benchmark by capitalizing on market conditions to deliver robust returns.

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