Tesla (TSLA) fell by nearly 50% earlier this year, giving up post-election gains amid a market-wide decline and a spat between President Donald Trump and CEO Elon Musk. It has been making a comeback in the past few months and is up by 3.5% year to date, although it remains nearly 12% off its YTD highs and is underperforming the S&P 500 Index ($SPX).
The comeback can be attributed to Musk making a pivot to artificial intelligence.
Namely, he has been placing a greater emphasis on Optimus robots and robotaxis. The latter has largely been a disappointment, with competition from Uber (UBER) and Waymo, but shareholders are still hopeful that Optimus can carry Tesla to fresh highs.
Musk now seems to be putting the spotlight on another one of Tesla’s AI offerings. He posted on X saying, “Most people don’t know that Tesla has had an advanced AI chip and board engineering team for many years.” Musk pointed out that Tesla has “designed and deployed several million AI chips” for data centers and believes they will “...profoundly change the world in positive ways, saving millions of lives due to safer driving and providing advanced medical care to all people via Optimus.”
Investors Remain Bullish on TSLA Stock
Investors have always paid a premium for TSLA stock, valuing it much more highly than any other automaker. This has mostly been because investors thought electric vehicles were the future, with Tesla spearheading EV development and sales. The company was also posting stellar growth becoming increasingly profitable.
The boom for Tesla’s EVs did not last long, as growth ground to a halt. Vehicle unit sales declined from 1.8 million in 2023 to 1.79 million in 2024, a very sharp change in momentum, considering vehicle unit sales were 1.31 million in 2022. Revenue has been similarly constrained, though Q3 showed an 12% year-over-year increase. The caveat is that it came with a 37% decline in earnings per share.
Paradoxically, though, TSLA stock has not only managed to hold on to its earnings multiple, but actually expanded it. The stock has kept up a long-term uptrend despite falling profits and very slow growth for a business trading at over 288 times trailing earnings.
Tesla Is No Longer Valued as a Car Company
Shareholders should thank Musk’s timely pivot to AI. TSLA stock reversed from a deep slump as Musk has managed to convince retail and even institutional investors, such as Cathie Wood, that Optimus robots will make it a multitrillion-dollar company in a few years.
In all likelihood, this is a project that will take over a decade to come to fruition. Full self-driving took the company over a decade to develop, and Tesla missed its own deadlines again and again. In 2015, Musk claimed full autonomy would be achieved by 2018. Today, the company has still not reached that feat.
An autonomous robot has far more variables to deal with, as each household is different and the range of work it will have to do is massive. You don’t have to be an expert in the field to concede that Tesla is very likely to underdeliver again on its promises.
What the market is doing now is putting a price on the slim prospect of having a $25,000 robot doing all the chores at every household, perhaps with a subscription.
As for other endeavors like AI chips, those are used almost exclusively in-house. Tesla may be able to sell those in the future, but the potential revenue from them is inconsequential when valuing the stock today.
Should You Buy TSLA Stock Now?
Tesla is now highly correlated with the broader AI rally, and the stock’s fate rests on where this rally goes. If you are a strong AI bull, it wouldn’t be a bad idea to keep buying the stock. Then again, it would be a much smarter idea to buy Nvidia (NVDA) or Alphabet (GOOG) (GOOGL) instead due to better profits and fundamentals.
More likely, TSLA stock will undergo a sharp correction in the future. Its AI ambitions are not realistic, and missed deadlines can only be offset with bigger and bigger promises for so long. The numbers just aren’t there to justify the triple-digit valuations.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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