A bit of a provocative title, and I apologize, but let me break this down: By “buying Tesla,” I mean $TSLA (stock). I’m not against buying a Tesla vehicle because, fortunately, I’m a lover of technology, and Teslas, even with their flaws are a technological amazement to me. (But then again, most modern cars are) However, Tesla stock, unlike its cars imho (maybe), is not a buy. After a massive feud between Elon Musk and U.S. President Trump online last Thursday (which, sadly, I won’t be talking about, but is the reason I decided to write this on Tesla), Tesla stock fell by 14% in one day (~$150 billion in market cap). “Stock go down, I buy,” is the usual response to a “dip” like this. But let’s take a step back and break this downturn (and Tesla as an investment as a whole) down rationally. For a quality investment—as in a stock you should be comfortable buying when it drops below fair value—there are four pillars to look out for: 1. Is the business competitively advantaged? 2. Is the business growing? 3. Is the business run by competent management? 4. Is the business trading at a fair price? Now, aside from the competent management part (which I won’t talk about because the answer is yes, Elon Musk is a competent manager. Problem is, he's unpredictable, and had made historically false promises that have never been kept), I want to break all of these down. Starting with competitive advantage or business moat. From 2015 to about 2022, Tesla was consistently the world’s largest car manufacturer in EV unit sales. Due to pro-EV policy worldwide particularly in China and America (its biggest markets), Tesla kept that advantage. There was honestly very little competition in the early days. Tesla had early-mover advantage, global brand appeal, and unmatched battery tech that kept them above most other competitors if there were any. But fast forward to as recent as 2023, and BYD (a Chinese brand) overtook Tesla as the global leader. The rise of Chinese EV manufacturers plus European competition, has turned Tesla’s moat upside down. (Or should I say? Ran over.) Tesla controls ~15% of the EV market globally as I write this, but BYD has ~16%. And in total, Chinese automakers have a nearly 30% share. More than any other country on Earth by a long shot. Early-mover advantage? Irrelevant. Global brand appeal? Weaker in America due to Musk’s politics and weaker in China due to EV tariffs from the West and Trump. As for battery tech? China is now on-par in cost and efficiency (CATL, BYD). All of this made things worse for Tesla and led to its “collapse” in the face of Chinese competition especially. (E.g., In 2024, Tesla delivered ~37% of its cars to customers in China. This is a huge part of their business that they’re now losing share of.) Tesla isn’t over. It’s still a leading manufacturer (it has a 1-up to China in terms of revenue and manufacturing diversity, whereas China only leads in China), and still leads in software. But I’m not going to assume China won’t catch up eventually. At most, Tesla has a narrow moat due to its software and global reach. But even that’s minimal when we consider Europe is looking to allow Chinese cars. Next, is Tesla growing? Yes, but barely. Revenue and total cars delivered have stagnated in growth over the past eight quarters (1.03% YoY revenue growth and -1.5% growth in cars delivered, respectively), and net income/GAAP profitability has dropped by over 50% in the past year due to slowing demand leading to price decreases etc. Tesla has 3 revenue segments: 1. Automotive (~77% of revenue) 2. Energy Generation & Storage (~12% of revenue) [Solar panels, solar roof, and Powerwall revenue] 3. Services & Other (~11% of revenue) [Vehicle servicing, repairs, insurance, charging revenue, merchandise, etc] Those other two segments aside from cars, which make up around 23% of total revenue, are growing at a decent rate (33% and 24% YoY, respectively). These segments are presumably much less capital-intensive, higher-margin, and are branches of a sort of ecosystem based on the Tesla fleet. I’ve heard arguments that this growth justifies some of the valuation because “these segments will take up a larger share of revenue in the future.” So ok, let’s run with this argument: If we assume growth continues in these two fast growing segments at their current rate (and that they halve over the next 5 years (which is a fair, conservative pace of deceleration) and that Automotive averages out to 1.5% annually in growth, combined these segments would only make up ~32% of revenue by 2029-30. Meaning a 3.5% total revenue CAGR over the next 5 years. Even in 5 years, the bulk of Tesla’s business will still hinge on their losing global share of the BEV market. These high-growth segments aren’t going to be the saviour. “But what about Robotaxi, Jacob?” And this is a great question. Robotaxi could definitely “save” Tesla if it works out. And as of the time I write this, Tesla is expected to test their first robotaxi service with limited users on June 12, 2025. Global robotaxi vehicle production is said to start in 2026. But here’s my take: When analyzing business growth, it’s irrational to assume any extra growth based on robotaxi for Tesla. “Oh, but the market is forward-looking and future growth matters.” Yes; but when any promise in the past by a company has not been fulfilled, and given that you can’t predict the future, how can you value that? You just can’t. And take that uncertainty multiplied by ♾️ for Tesla. Even with my $UBER thesis on autonomous vehicles, or $AMZN with robotics… I only value and analyze the growth of these businesses using CURRENT fundamentals and business segments. These other growth vehicles (pun intended) I treat as a “side dish” that I didn’t have to pay for. It still holds substance as part of my thesis, but if it doesn’t happen, I only lose potential added upside and not guaranteed downside. Robotaxi is irrelevant here using that same logic. But what about price? How’s valuation looking for Tesla? I’m going to completely avoid multiples here for the valuation, and I’m going to use the default DCF metrics I would use for any potential new holding (I.e., a 13.5% discount rate, 30% margin of safety (MoS). For the first DCF, I’m going to be optimisic. First, I’ll add Tesla’s $32 billion in net debt, and I won’t subtract the ~$2 billion in stock-based compensation from the FCF number. I’ll also give the company a 25x FCF multiple “because of its fast-growing service businesses,” and a 10% CAGR for growth. Very optimistic inputs! You could argue this is what things would conservatively look like if robotaxi works as intended. And so, with these (what I’d consider) highly generous numbers, the fair price I calculated is about $207 billion, or $58.81 per share. Based on current prices as I write this, that means Tesla is about 388% overvalued *without* any MoS. But now, let’s be critical. Tesla is NOT growing at 10% annually and probably won’t over the next 5 years unless robotaxi really takes off. And even that’s generous because to have that growth, robotaxi would need to be a huge revenue source (tens of billions of dollars), which is unlikely. But hey, I’ll shut up for a moment. At most, 5% annual growth is the highest I’m going to say Tesla could realistically achieve under the current setup. This assumes revenue doesn’t budge much, and FCF catches up eventually. And by subtracting stock-based compensation from the FCF and slightly lowering the multiple to 20x (we’ll give flexibility for the high-margin segments), we get a fair value of $115 billion, or $32.67 per share—or about 778% overvalued based on the current share price. And again, without a MoS. We can go back and forth with a DCF, crunching numbers on Tesla. We can argue whether I’m “too conservative” or “too optimistic” in the calculations. Truth is, none of it would matter much anyway. There’s nothing else to it other than: Tesla is expensive based on price. And if Robotaxi doesn’t work out, then it’s undoubtedly overvalued, and the company is not something to invest your money into. If you want to take the bet that Robotaxi and robotics will provide billions—or even trillions—of dollars in revenue by the end of the next 5 years… then by all means, buy Tesla. I don’t doubt the company will achieve some sort of tech advancement in the future. Like I said when I started, I like their cars. And I’m not praying for the downfall. But it’s way too hard to rationally estimate any justifiable returns here. At least for my goals. I won’t he adding this company to my portfolio in the future unless things change. On one hand: The business is hurting, its market position has weakened, its too political (and even when Elon is out of politics, the industry is by nature full of regulation and policy changes (including with robotaxi). Not to mention it’s a capital intensive business. Nothing like a software company. On the other hand: Its top-line growth is stagnating, with a bottom-line decline and high dilution in FCF. Its service businesses (and robotaxi) are unlikely to make up for the large automotive revenue of the company to really accelerate growth. All of this at an egregious price tag. Personally, I’d rather not buy the overpriced car company with false promises. I’d like to sleep peacefully thank you very much. Summary: I’m not buying, but I wish the company and its shareholders huge success if you think otherwise. That’s it. Happy investing. Follow if you learned something new, and for deeper insights subscribe to my newsletter. I’ll link my original $TSLA write-up in the comments where you can read this alongside graphs, charts and other data on my blog!
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82 Comments
Jacob B
@jacobb · 1yrEdited
I didn’t mean for this post to anger any Tesla bulls. So my bad in advance. If you’re open, comment and let’s discuss this rationally. Opportunity cost is a killer. 🫡 My Tesla write-up (completely free with graphs and charts): https://thejnicholas.substack.com/p/consider-avoiding-tesla
Daniel R@pibs500 · 1yr
Oh dear god you just activated all the Elon cucks…. lol. Sold at $270 and started buying puts on every rip since. TSLA can make you more money on the way down than up. Thanks for your post but sadly I think it’s landing on deaf ears. Welcome to blossom, home of the cults for Tesla and Palantir!!!
Faizaan @faizaan · 1yr
There’s a reason your down 5% all time 😂
le bib@le_bib · 1yr
And what demographic is left worldwide that want to buy a Tesla car? Sales are said to be down up to -80% in many non-US country already since tariffs and all. People leaning left in the USA don't want to be associated with Musk Now you had MAGAs to that list. Seriously, their TAM must be getting really narrow...
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