This article first appeared on GuruFocus.
Sep 3 – Elon Musk has unveiled another venture under his xAI umbrella, an artificial intelligence project called Macrohard, a tongue-in-cheek reference to Microsoft. While this latest move highlights Musk’s wide-ranging ambitions, it also raises questions about Tesla’s (NASDAQ:TSLA) valuation and leadership focus.
Tesla currently trades at a market capitalization above $1 trillion, supported by forward earnings multiples near 200x and forward revenue multiples above 12x. For fiscal 2025, analysts expect diluted EPS of about $1.70. Even under aggressive earnings growth assumptions, sustaining today’s valuation appears difficult. If Tesla compounds EPS at 30% annually over the next decade, implied returns hover near 6% annually. Only if earnings grow 40% annually would investors see returns in the low-teens, a scenario many consider unlikely given slowing EV momentum.
The latest financial reports indicate that unlike in 2023, the EV sales dropped to 72.5 billion in 2024 and overall EV-related revenue dropped to 87.6 billion in 2024 compared to 90.7 billion in 2023. Meanwhile, Chinese competitor BYD has reported revenue of 777 billion yuan ($107 billion) in 2024 and has already toppled Tesla in worldwide EV sales. The competition in Europe has been heating up as well with BYD surpassing Tesla in monthly sales earlier this year.
Musk keeps selling new projects- Robotaxi, Optimus humanoid robots, and the Dojo AI supercomputer. None, however, have so far proven itself commercially large or profitable. Analysts observe that Tesla energy business has about 10 billion annual revenues but has low margins compared to vehicles.
Both opportunity and risk are illustrated by the dependence on speculative projects, as well as the increasing number of commitments of Musk in various enterprises. Although Tesla is still a leader in electric cars and renewable energy, its 1 trillion dollar valuation presupposes an almost flawless performance. The stock has little upside and significant downside risk because of a lack of stronger earnings visibility, analysts warn.
