Elon Musk Thinks Tesla Will Become the World's Most Valuable Company, but This Glaring Problem Could Instead Lead to a 70% Plunge

Globe and Mail

06-04-2025

Tesla (NASDAQ: TSLA) stock ended 2024 with a gain of 63%, partly because of President Donald Trump's November U.S. election win. Investors speculated that a looser regulatory environment -- and CEO Elon Musk's closeness with Trump and his inner circle -- could pave the way for Tesla to bring its autonomous driving and humanoid robotics platforms to market more quickly.
According to Musk, these products could make Tesla the most valuable company in the world one day -- in fact, he thinks there is a possibility it could be worth more than the next five largest companies combined. Today, those five companies would be Apple, Microsoft, Nvidia, Amazon, and Alphabet, which are worth a combined $12.9 trillion.
But there's a glaring problem which has already sent Tesla stock plunging by 41% from its December record high: The company is experiencing a sharp decline in its electric vehicle (EV) sales, which still account for most of its revenue. Here's why Tesla stock could buck Musk's prediction and deliver more downside instead.
Tesla's first-quarter delivery numbers are in, and they aren't good
Tesla used to be the world's largest EV brand by sales, but China-based BYD snatched the throne by delivering more cars in the last two consecutive quarters. People appear to be choosing cheaper options like BYD's Seagull EV, which sells for just $10,000 in its domestic market, and is now moving into other regions, including Europe. Tesla simply can't compete at that price point.
But the rise of other EV manufacturers is only part of the story. The Tesla brand also appears to be losing some of its shine organically, because it failed to grow sales during 2024. The company delivered 1.79 million cars for the year, which was a 1% decline compared to 2023. The result came just one year after Musk told investors he planned to grow EV production by 50% per year for the foreseeable future -- which simply isn't possible if the cars aren't selling.
This year is is shaping up to be even worse. Tesla just revealed that it delivered 336,681 EVs during the first quarter (ended March 31), which was a whopping 13% decline compared to the year-ago period. The number was also significantly below Wall Street's average forecast of 377,590, which analysts had already revised down in the weeks leading up to the official release.
Musk's involvement in global politics seems to be a key reason why many people are steering clear of Tesla. There have been growing reports of violence against Tesla dealerships and privately owned vehicles over the last few months, not just in the U.S., but also across Europe. Musk's leadership role in the Department of Government Efficiency -- an external group that's working with the U.S. government to cut what it calls "wasteful" spending to reduce the national debt -- is especially divisive among Americans.
Tesla's long-term catalysts could be more valuable than the EV business
Tesla has a market capitalization of $886 billion as of this writing, making it three times more valuable than Toyota, despite selling 83% fewer cars last year. Simply put, Tesla's valuation isn't grounded in the realities of its EV business right now. Instead, investors are focusing on a series of future products that haven't actually hit the market yet.
One of them is the Cybercab, which is designed to run on the company's full self-driving (FSD) software. Tesla's goal is to establish a ride-hailing network where its robotaxis can autonomously haul passengers and earn revenue for the company around the clock (like Uber, except without human drivers). Tesla's FSD software isn't approved for unsupervised use on American roads just yet, but Musk is hopeful it will be active in Texas and California sometime this year.
There are some substantial expectations for the Cybercab on Wall Street. Dan Ives from Wedbush Securities thinks autonomous vehicles represent a trillion-dollar opportunity for Tesla, and Cathie Wood's Ark Investment Management predicts that autonomous ride-hailing alone will catapult the company to a $8 trillion valuation by 2029.
But Musk is eyeing an even bigger opportunity: humanoid robots. He believes they will outnumber humans by 2040 as we defer repetitive jobs, dangerous tasks, and even household chores to them. Tesla plans to build several thousand of its Optimus humanoid robots during 2025, but Musk thinks annual production could top 100 million units in the coming years.
It's unclear whether demand will ramp up equally fast, but nevertheless, Musk recently told investors that Optimus could bring in a mind-boggling $10 trillion in revenue over the long term.
Tesla stock could plunge by another 70%
As bright as Tesla's long-term future might be, EV sales still account for 79% of the company's revenue, so the recent declines are going to have highly negative effects on its financial results. Tesla's 2024 earnings per share (EPS) plunged by 53% to $2.04 on the back of the modest decline in EV sales last year, so its bottom line could take an even bigger hit in 2025 should the company not improve on its delivery numbers.
Tesla stock trades at an eye-popping price-to-earnings (P/E) ratio of 130.9. That makes it four times as expensive as the Nasdaq-100 index, which hosts most of Tesla's big-tech peers and trades at a P/E ratio of just 29.2. It's also significantly more expensive than Apple, Microsoft, Nvidia, Amazon, and Alphabet.
TSLA PE Ratio data by YCharts.
In order for Tesla to become more valuable than all five of those companies combined (as Musk predicts), its stock would have to soar by 1,350% from where it trades as of this writing. Its current P/E ratio makes that practically impossible, especially if the company's EPS continues to shrink -- which is likely if its EV sales continue to head south.
Products like the Cybercab and Optimus aren't expected to go into mass production until 2026 or later, which means Tesla has to find a way to buoy its EV business for at least the next couple of years. Unfortunately, it's facing so many headwinds -- from brand damage to competition -- that righting the ship could take a significant amount of time.
I don't think Tesla's upcoming products will come to market fast enough to offset its floundering EV business, which is why I believe its stock is likely to plummet from here. It would have to decline by 73% just to trade in line with the P/E ratio of Nvidia, which is one of the fastest-growing companies in the world. It would also have to decline by 78% just to align with the P/E ratio of the broader Nasdaq-100. Those scenarios could be on the table in the coming year or so.
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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 the following options: long April 2025 $200 puts on Tesla and long April 2025 $210 puts on Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, Tesla, and Uber Technologies. The Motley Fool recommends BYD Company and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.