Tesla Stock: Priced For Sci-Fi, Still Selling Cars

Core Insights - Tesla is at a critical point as it faces challenges in its core electric vehicle business while being valued at a premium due to expectations of future advancements in AI and autonomy [2][4][9] Automotive Division Challenges - The automotive division remains the primary source of Tesla's revenue but is currently facing significant difficulties [3] - Tesla's automotive gross margins have decreased to approximately 16% to 18%, down from over 25%, bringing it closer to the margins of traditional automakers like Ford [7][9] - In the U.S., EV sales dropped by about 30% year-over-year in October due to the expiration of federal EV tax credits, leading to a demand vacuum [7] - In Europe, Tesla registrations fell by 48.5% in October as consumers shift towards newer, more affordable alternatives from competitors [7] Valuation Discrepancy - Tesla's stock is trading at a Price-to-Earnings (P/E) ratio of around 260x projected 2025 earnings, while traditional automakers trade at 7x to 12x [4] - This valuation premium is largely attributed to the "AI Premium," as investors focus on potential future developments in AI rather than current automotive performance [4] Energy Division Performance - Tesla Energy is the only segment showing significant success, with revenue from energy generation and storage increasing by nearly 44% in Q3, driven by demand for Megapacks [5] - Despite this growth, the energy division alone cannot justify Tesla's trillion-dollar valuation or offset losses from the automotive sector [5] Future Prospects and Risks - The company's aspirations for autonomous vehicles and humanoid robots are facing delays and regulatory challenges, with limited progress reported on Full Self-Driving (FSD) licensing [8] - Free cash flow has decreased from $8.5 billion in 2022 to $4.4 billion in 2023, with projections of around $3.6 billion in 2024, raising concerns about the sustainability of Tesla's AI initiatives [9]