On 7 November, Americans voted in the presidential election. At the time, the Tesla (NASDAQ:TSLA) stock price was $289. The next day, after Donald Trump was confirmed the winner, it soared to $350.
The stock then went on an impressive bull run peaking, on 17 December, at just under $489. Since then, it’s been in reverse. Today (12 March), it’s $230, a fall of 53% from its recent high. Yesterday, it tanked over 15%.
However, even after recent events, the car maker’s still worth more than Toyota, Ferrari, Mercedes-Benz, Volkswagen, BMW, Porsche, General Motors, Honda, Ford and Stellantis combined.
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The average price-to-earnings (P/E) ratio for stocks in the sector is around 12. But with reported earnings per share of $2.04 in 2024, Tesla trades on a historic P/E ratio of 112.7. It’s been higher though. At the start of 2021, it was over 1,000.
But hang on, Tesla isn’t just a car company. Elon Musk once said: “We should be thought of as an AI robotics company. If you value Tesla as just an auto company – it’s just the wrong framework.”
OK, let’s do this. The current P/E ratio of the ‘Magnificent Seven’ is around 28. Therefore, the company’s shares should be changing hands for around $57. That’s a 75% discount to their current value.
Whatever its status, the company appears overvalued to me. But then again, based on all conventional valuation metrics, I think it always has been.
What now?
As ever, the company continues to divide opinion. Of the 57 analysts covering the stock, 28 are recommending that their clients Buy, 16 are Neutral and 13 are saying Sell. Their target prices range from $135 to $1,000, with a median of $393.
Supporters believe that fully autonomous vehicles will propel the company’s earnings to another level. Doubters say the value placed on this is over-inflated. They point to the fact that BYD gives away its self-driving software for free.
But despite the recent stock price turmoil, I don’t see any reason to panic. It’s only 20% below its pre-election price. Personally, I think it’s best to keep things in perspective and avoid hyperbole. But I admit it makes a good story.
In response to a post on X that listed the largest one-day falls in Tesla’s history — the one on 10 March was ‘only’ the seventh worst — Musk replied: “It will be fine long-term”.
Remember, we’ve been here before. Looking at the eight biggest daily falls, the share price is now higher than after all of them.
A new role
But there’s one thing that’s different now. Musk has recently ventured into politics and appears to be creating some enemies. According to The Guardian, in Germany, there’s some evidence of an anti-Musk feeling. But sometimes these things are exaggerated. Tesla’s not the only stock falling at the moment.
President Trump’s ‘on-off’ tariff policy is wreaking havoc. And JP Morgan Chase says there’s now a 40% chance of a US recession this year.
On balance, I think the Tesla stock price (and most US equities) could have further to fall. I’m therefore going to wait patiently on the sidelines with a view to picking up some bargains later in the year. However, I’m still undecided as to whether Tesla will be one of them.
