Tesla is one of the most hated stocks in the world, as CEO Elon Musk has infuriated much of his automobile customers politically, and ticked off a lot of investors financially (the shares are down big). This report considers the business model, growth trajectory, valuation metrics, risks, and then concludes with a strong opinion on investing.
About Tesla
Tesla was founded in 2003 (by Martin Eberhard and Marc Tarpenning), whereby current CEO, Elon Musk, joined as an early investor. Headquartered in Austin, Texas, the company’s mission is to accelerate the world’s transition to sustainable energy.
To accomplish its mission, Tesla designs, manufactures, and sells electric vehicles (including luxury sedans (Model S), midsize sedans (Model 3), crossover SUVs (Model Y), light-duty trucks (Cybertruck), and a semi-truck).
However, beyond just automotive, Tesla is vertically integrated, also producing battery storage systems (e.g. Powerwall), solar panels, and solar roofs (through its energy generation and storage segment). And it has a global network of Supercharger stations.
From a financial reporting standpoint, Tesla operates in two main segments: Automotive (approximately 90% of revenue) and Energy Generation and Storage (the other 10%).
Tesla has production facilities in the US (California, Texas, Nevada), China (Shanghai), and Germany (Berlin). And in 2024, it delivered approximately 1.79 million vehicles worldwide (down from 1.81 million in 2023, due to both competitive pressures and production challenges). Regardless, Tesla remains the world’s most valuable “automaker” by market cap (despite traditional automakers producing significantly more vehicles, yet trading at lower valuation multiples—more on valuation later).
Tesla’s Growth
Historically, Tesla’s growth has been remarkable, but it has slowed dramatically recently. From 2016 to 2020, Tesla’s compound annual growth rate, or “CAGR” (in vehicle deliveries) was near 60% (as it scaled from niche to mainstream). Management still targets a long-term delivery growth rate of 20% annually, but the company continues to fall short (as the rollout of a more affordable Model Y has been delayed). Some analysts expect delivery growth to resume in 2025 (potentially reaching 2 million units), bolstered by new factories and product lines (but with Musk focused on other non-Tesla responsibilities, an increasing number of investors expect the company to fall short).
Shifting Strategy:
Beyond electric vehicles (EVs)…
Tesla’s energy business is rising. For example, energy storage deployments grew significantly in 2024 (with revenue increasing double digits).
Artificial Intelligence: The company’s investments in artificial intelligence (AI), particularly its Full Self-Driving (FSD) software, and the Optimus humanoid robot project, signal a shift toward diversification. For example, Musk seems to be pivoting Tesla’s narrative from mass-market car production (i.e. abandoning the long-awaited $25,000 “Model 2”), to focusing on autonomous driving and robotics. For perspective, some analysts (such as those at ARK Invest) believe robotaxis could account for 88% of Tesla’s value by 2029, potentially generating $760 billion in annual revenue.
Decelerating EV Sales: Again, 2025 has been turbulent. Global EV sales growth has decelerated, and Tesla’s U.S. sales dropped 11% in January (while EV sales for competitors have risen). For example, Tesla faces intense competition in China from BYD and others (seemingly prompting plans for a cheaper Model Y).
Despite challenges, Tesla’s cash reserves grew to $36.5 in late 2024 (up 31% from 2023) and thereby providing a buffer for continuing innovation and market challenges.
Valuation
Based on traditional valuation metrics, Tesla’s shares are still very expensive (even after falling from $409 in December to $210 recently). For example, it trades at a forward price-to-earnings (P/E) ratio above 100x. This is very high compared to Ford (trades around 7x) and Toyota (at 10x). Tesla also has an enterprise value-to-EBITDA ratio of 59.6x (very high!), and its price-to-sales ratio of around 7x (also high!).
To justify these high valuation metrics, investors are clearly factoring in value from future growth, such as “full self driving” (“FSD”) adoption, as well as the robotaxi initiative. For perspective, if successful, Tesla has the ability to disrupt Uber and Lyft (i.e. a large market) by offering significantly less expensive transportation (i.e. no cost of a driver).
Tesla’s automotive gross margins (excluding credits) fell to the mid-teens in 2024 from 20% in 2023 (signaling price cuts related to competition). Again, investors attribute the majority of Tesla’s share price to being a technology and AI firm, not from being an automaker.
For a little more perspective, Tesla’s $22.9 billion net cash position ($7.13 per share) and debt-to-equity ratio of 0.18, strengthen its financial wherewithal. However, its $13.6 billion debt and $11.3 billion in capital expenditures (for 2024) show that high growth is expensive.
Also noteworthy, free cash flow was $3.6 billion over the past 12 months, modest relative to its $670 billion valuation (again, suggesting investors are betting heavily on long-term disruption).
Risks
Investing in Tesla is significantly risky, for a variety of reaons:
Competition: First, competitive pressure is intensifying. Traditional automakers (e.g., Ford, GM) and EV startups (e.g., Rivian, NIO) are eating away at Tesla’s once-dominant 55% U.S. EV market share (down from 62% in 2022). In China, BYD’s lower-cost offerings threaten Tesla’s position, forcing price reductions that squeeze margins.
Execution risk: Tesla’s history of production delays—evident in the Cybertruck’s slow ramp-up and the canceled Model 2—raises doubts about delivering on Musk’s promises, such as the Cybercab robotaxi slated for 2026. FSD remains at Level 2 autonomy, far from the Level 5 Musk has touted, and regulatory hurdles could delay autonomous deployment.
Musk is a Risk: Tesla relies heavily on Elon Musk, which is a double-edged sword. For example, his political involvement (including a $250 million “investment” in Trump’s 2024 campaign, and his role as a White House advisor) has ticked off a lot of customers (leading to to boycotts and a big share price decline so far this year).
Macro factors, such as increased interest rates, slowing EV adoption, and shifting investor sentiment (away from growth stocks) add volatility and uncertainty. Tesla’s high valuation (even after recent share price decline) still leaves little room for error (shares can still decline significantly from here).
Regulatory and geopolitical risks: Phasing out EV incentives (in key markets) and potential trade tensions (under a Trump administration) could create further challenges for the company (despite what appears to be some increasing political leverage for Musk).
Who Should (and Should Not) Consider Owning Tesla Shares?
Tesla shares are extremely volatile. It is a long-term growth-focused business that experiences a lot of short and mid-term volatility. Investors need to believe in Musk’s vision (of Tesla as an AI and robotics lead, and be comfortable with significantly speculative bets). Again, much of Tesla’s valuation relies on unproven initiatives, such as robotaxis and Optimus—not its current auto business.
Value investors seeking stable dividends or low P/E ratios should stay away. The company’s nosebleed price-to-earnings ratio (and lack of dividend payments) pits it directly against the needs of many lower-volatility and income-focused investors.
However, some investors may chose to allocate a small portion of their nest egg to Tesla (balancing the risks with more diversified and less volatile opportunities). Still, if you’re going to own any shares, you need to have a long-term perspective and a plenty of financial wherewithal to stomach volatility and wild price swings.
Conclusion
Tesla’s growth story continues to evolve, and its future is based on much more than just producing EVs. Specifically, the valuation is based on big disruptive bets (AI, FSD, Optimus) and the company has the resources, leadership (when Musk is not distracted) and track record to succeed.
Tesla also has a $36 billion cash pile (and low debt) to deal with the challenges and opportunities ahead.
If you are a long-term, growth-focused investor (with a high tolerance for near and mid-term price volatility), Tesla shares may be worth considering (for a dip-your-toe-in investment). Just understand, that despite the recent share-price declines, things can still get much worse before they get better.