275 times earnings! Am I the only person who thinks Tesla’s stock price is over-inflated?
During the six months to 22 December, the Tesla (NASDAQ:TSLA) stock price has risen by approximately 50%. Yet all of the metrics I use to assess the groupâs stock market valuation indicate that its shares are hugely expensive. However, as this recent rally demonstrates, many people still see some value in the electric car maker.
Clearly, Iâm missing something. What could it be?
Off the Richter scale
Over the four quarters to 30 September, Tesla reported earnings per share (EPS) of $1.77. This means its stock is currently trading on 275 times historic earnings. But this figure has been adjusted for the loss made on cryptocurrency. Include this and the reported EPS drops to $1.44 and the price-to-earnings (P/E) ratio increases to 339.
An alternative valuation measure is the P/E-to-growth (PEG) ratio. Generally speaking, a figure below one indicates good value. For Tesla to have a PEG less than one, its earnings would need to be growing hugely. They are not. The groupâs revenue in the third quarter of 2025 was 12% higher than a year earlier.
It’s a similar story when it comes to the companyâs balance sheet. It had a book value (assets less liabilities) of $81bn at 30 September. Its current market cap is 18.6 times higher.
And Teslaâs valuation looks even more incredible when compared to some of the more established names in the industry. Take Ford as an example. It has a P/E ratio of less than 10.
| Four quarters to 30.9.25 (unless stated) | Tesla | Ford |
|---|---|---|
| Revenue ($bn) | 95.6 | 189.6 |
| Market cap at 22.12.25 ($bn) | 1,520 | 52 |
| Earnings per share ($) | 1.77 | 1.35 |
| Stock price at 22.12.25 ($) | 486 | 13 |
| Price-to-earnings ratio | 275 | 9.6 |
But hang on…
By now, I suspect millions of loyal fans of the company are yelling in frustration claiming that Iâm missing the point. No doubt they will point out that Teslaâs a technology company and not a car manufacturer. They will suggest that making a comparison with Ford is meaningless. I suspect they will argue that its value lies in its future potential with, in particular, its self-driving technology, robo-taxis, and robots.
But even at their peak, the tech-focused Magnificent 7 (of which Tesla is one), were trading at a combined multiple of not much more than 50 times earnings. Nvidia would be valued nearly 10 times higher, if it was judged on the same basis as its automotive cousin. However, despite my concerns, the consensus of 50 analysts is that Tesla’s only marginally over-valued.
And if Tesla can get things right, the potential is huge. Before Elon Muskâs enormous $1trn pay package was approved earlier this year, ARK Invest predicted that the companyâs robo-taxi network would generate at least $600bn of annual revenue by 2029. Others predict even bigger returns from its Optimus robot programme. Musk himself reckons it could account for 80% of Teslaâs market cap. In 2024, he predicted it might drive Teslaâs stock market valuation towards $25trn.
Time will tell whether these figures are realistic but I admit I have my doubts. Of course, history suggests Iâm going to be proven wrong (again). Teslaâs stock has been over-valued for as long as I can remember. And yet many people — including some institutional investors — have made loads of money from their shares in the group. In addition, Iâm sure lots of others are sitting on some impressive paper gains. However, despite this, I just canât bring myself to invest.
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James Beard has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
