Elon Musk Thinks Tesla Will Be the World's Most Valuable Company, but This Huge Problem Could Send Its Stock Plunging by 70% Instead

Yahoo

2 days ago

Self-driving cars and humanoid robots are key to Musk's bullish vision for Tesla, but the company has to overcome major challenges first.
Tesla's electric vehicle sales are plummeting, and continued weakness could lead to massive losses for the stock.
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Tesla (NASDAQ: TSLA) stock hit a new record high in Dec. 2024 on the back of President Trump's election win. Investors speculated that Trump's focus on deregulation could speed up the company's ability to commercialize its autonomous robotaxi and humanoid robot opportunities.
In fact, CEO Elon Musk believes those two businesses will eventually make Tesla the world's most valuable company one day -- potentially even more valuable than the next five companies combined. Today, those five companies are Microsoft, Apple, Nvidia, Amazon, and Alphabet, and they have a combined market capitalization of $13.6 trillion.
But there's a problem: Tesla is worth only $1.2 trillion as of this writing, and most of its revenue still comes from selling electric vehicles (EVs), which are seeing plummeting demand. That's bad news for Musk's ambitious forecast in the near term, and here's why it could lead to a collapse of over 70% for Tesla stock instead.
Back in 2023, Musk told investors Tesla could grow its EV production 50% annually for the foreseeable future. Deliveries hit a record high of 1.81 million vehicles that year, a year-over-year increase of 38%. But in 2024, deliveries shrank by 1% to 1.79 million.
Simply put, Tesla can't grow production 50% per year if sales aren't keeping up. Unfortunately, the situation appears to be getting worse: Deliveries plunged even further in the first quarter of 2025, this time by 13%. And there could be an even sharper decline in the second quarter if the available data from April is accurate.
In the United Kingdom, new Tesla EV registrations fell 62% year over year in April. There were also sharp declines across Europe -- registrations collapsed 81% in Sweden, 74% in the Netherlands, 67% in Denmark, and 59% in France. Analyst estimates indicate Tesla might deliver as little as 350,000 cars during the second quarter, or a year-over-year drop of more than 20%.
The problem seems to be specific to Tesla because EV sales overall soared 28% across Europe in April. Chinese automaker BYD saw a staggering 359% increase in sales across the region, and it sold more cars than Tesla for the first time ever during the month. BYD is known for its ultra-affordable models, like the Seagull, which sells for under $10,000 in China. Tesla simply can't compete at that price point.
Musk's political affiliations might also be damaging the brand, mainly because of his work within the Trump administration's Department of Government Efficiency. Musk helped slash thousands of federal jobs and shuttered entire agencies. According to the most recent CNBC All-America Economic survey, around half of Americans now have a negative view of Musk, while only 36% view him positively. That public opinion flowed through to Tesla with 47% of respondents expressing a negative view of the company.
Last October, Tesla unveiled its long-awaited Cybercab robotaxi. It has no pedals or steering wheel because it's designed to run entirely on the company's Full Self-Driving (FSD) software. Musk wants to build a ride-hailing network in which Cybercabs can transport passengers and earn revenue for Tesla around the clock.
But the unsupervised version of Tesla's FSD isn't approved for use on public roads yet. Musk says the company could offer paid autonomous rides starting in June of this year, but he doesn't expect true scale to be achieved until the second half of 2026. That places Tesla significantly behind the likes of Waymo, which is already completing over 250,000 paid autonomous trips every single week across Los Angeles, San Francisco, Phoenix, and Austin.
Catching up to Waymo won't be easy because it has partnered with Uber Technologies, which operates the world's largest ride-hailing network with 170 million monthly users. It could take Tesla years to achieve that level of scale, especially if it builds its own mobility network from scratch.
But Musk is eyeing another major opportunity: the Optimus humanoid robot. He says it could generate a staggering $10 trillion in revenue over the long term. Tesla will reportedly manufacture thousands of them this year to use inside its factories, but Musk predicts the company could be producing millions of them annually by 2029 or 2030.
Optimus could eventually be used for the dangerous jobs and repetitive tasks that humans don't want to do, so there is an enormous addressable market across the business and consumer sectors. While Musk claims humanoid robots will outnumber humans by 2040, keep in mind the CEO is known for bold predictions that don't always come to fruition.
If products like the Cybercab, FSD, and Optimus are a success, Tesla could certainly become the world's most valuable company. But it's facing a serious problem right now because its stock is trading at an eyewatering price-to-earnings (P/E) ratio of 186.5.
For some perspective, Nvidia, Microsoft, Amazon, Apple, and Alphabet trade at an average P/E ratio of just 32.2:
Tesla's earnings per share (EPS) plunged 71% during the first quarter of 2025, whereas each of the other five companies generated EPS growth in their most recent quarters. Tesla's premium valuation makes even less sense from that angle because investors typically assign a higher P/E ratio to companies that are growing quickly.
Tesla stock would have to plummet by 76% just for its P/E ratio to trade in line with Nvidia's, and that is a legitimate risk. Despite the long-term potential of products like the Cybercab and Optimus, 72% of Tesla's revenue still comes from selling EVs, and the pace at which sales are shrinking will almost certainly drive an ongoing collapse in the company's EPS for the foreseeable future.
Remember, based on Musk's optimistic predictions, it could be years before the Cybercab and Optimus businesses are generating enough revenue to offset the weakness in Tesla's EV sales. As a result, there is little hope the company will grow to exceed the combined value of Nvidia, Microsoft, Amazon, Apple, and Alphabet anytime soon. I believe the stock is destined for a sharp decline instead, bringing its P/E ratio in line with those of its big-tech peers.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, 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, 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.
Elon Musk Thinks Tesla Will Be the World's Most Valuable Company, but This Huge Problem Could Send Its Stock Plunging by 70% Instead was originally published by The Motley Fool