Elon Musk Thinks Tesla Will Become the World's Most Valuable Company. I Predict Its Stock Will Decline by 50% (or More) Instead.

Core Insights - Tesla's stock experienced a significant increase of 63% last year, reaching an all-time high in December, driven by investor optimism regarding a favorable regulatory environment for its autonomous driving and robotics technologies [1] - CEO Elon Musk envisions Tesla potentially becoming the most valuable company globally, possibly exceeding the combined market value of the next five largest companies, which currently totals $13.4 trillion [2] - However, Tesla's stock has recently declined by 44% from its peak, raising concerns about its ability to achieve such lofty valuations [3] Business Performance - Tesla's core business is heavily reliant on electric vehicle (EV) sales, which account for 79% of its revenue, facing increasing competition that is impacting sales [4] - Despite Musk's previous claims of 50% annual production growth, actual deliveries grew only 38% in 2023 and decreased by 1% in 2024, indicating potential challenges ahead [5] - Sales in Europe have seen a drastic decline, with a more than 50% drop year-over-year in January, including a nearly 60% decrease in Germany, highlighting a significant loss in market share [6][7] Competitive Landscape - Consumers are increasingly opting for lower-cost EVs from competitors like BYD, which offers vehicles priced under $10,000, leading to a substantial decline in Tesla's sales in key markets [8] - Tesla's sales in Norway, France, Sweden, and Denmark also experienced significant drops, indicating widespread challenges across Europe [7] Future Prospects - Musk is focusing on autonomous driving and robotics as key growth areas, believing that products like the full self-driving software and humanoid robots have much larger addressable markets than EVs [9] - The full self-driving software is not yet approved for unsupervised use in the U.S., but Musk anticipates its rollout in Texas and California soon, with potential revenue from a robotaxi network [10] - Analysts estimate that the full self-driving technology could add $1 trillion to Tesla's market capitalization over time, while Ark Investment Management projects $756 billion in annual revenue from autonomous ride-hailing by 2029 [11][12] Valuation Concerns - Tesla's earnings per share (EPS) fell by 53% to $2.04 in 2024, attributed to declining EV sales and price cuts that affected profit margins [14] - Despite a 44% drop in stock price, Tesla's price-to-earnings (P/E) ratio remains high at 128.6, significantly above that of major competitors [14] - For Tesla to surpass the combined value of the five largest companies, its stock would need to increase by 1,500%, which appears unrealistic given its current valuation and earnings trajectory [15][16]