Should Tesla Still Be Valued Like A Growth Stock?

Tesla (NASDAQ:TSLA) stock declined nearly 5% on Wednesday, extending its year-to-date decline to about 35% amid concerns about the U.S. economy, Tesla’s declining sales, and diminished brand image.  Even after the sell-off, Tesla stock trades at over 95x estimated 2025 earnings and 70x 2026 earnings. The question is whether Tesla still deserves to be valued like a growth stock, or whether the markets are pricing in a version of Tesla that no longer exists.

Tesla’s Brand & Demand Fading?

Deliveries are trending lower. Tesla reported 336,681 deliveries in Q1 2025, down 13% year-over-year as Tesla faces pressure in multiple markets. Inventory is also trending upward, as Tesla produced 362k vehicles in Q1 but delivered just 336k – implying the inventory likely rose by 26k units.

U.S. sales fell about 9%, per Cox Automotive estimates. While the Model Y refresh may have played a role, it doesn’t explain the full drop, as the new Model Y appears to be readily available across most of the U.S. with no significant order backlog. Tesla’s brand image has taken a hit following CEO Elon Musk’s plunge into politics and his role in the Trump White House. This could turn off the company’s typically progressive customer base. Moreover, recent U.S. tariffs on imports risk pushing the economy into a recession. Although Tesla may benefit from producing cars domestically, it still relies on parts from China and Mexico, exposing it to rising costs.

In China, Tesla’s sales ticked up in March to 134,607 units, but the outlook remains uncertain. A growing trade war and Musk’s political ties may erode goodwill in a key market that contributed 21% of Tesla’s revenue last year. China has raised tariffs on U.S. goods to 125% in retaliation for the U.S’s 200% plus tariffs, and Tesla has reportedly stopped taking orders for imported Model S and X vehicles. Meanwhile, Chinese EVs are getting much more compelling, with rising local support amid the U.S. trade conflict. Even though Tesla builds its vehicles locally in Shanghai, with the capacity to produce over 950,000 vehicles per year, lower sales and underutilization could pressure margins.

In Europe, Tesla faces similar challenges, compounded by the Trump Administration’s growing alienation of traditional allies. Tesla’s market share across 15 countries fell to 9.3% in Q1 from 17.9% a year ago. Musk’s support for Germany’s far-right AfD party during the last elections likely didn’t help.

Does FSD Still Have An Edge?

A significant portion of Tesla’s high valuation multiple is driven by investor expectations around its autonomous driving business. However, progress with Full Self-Driving has been mixed. The system still has plenty of kinks that need to be worked out, and Tesla has a history of overpromising and underdelivering. Musk recently set an ambitious target for unsupervised self-driving by June 2025, but skepticism remains high given Tesla’s repeated delays and missed deadlines.

For instance, Musk previously claimed that v13 of the FSD software would enable a 5 to 6x increase in miles between disengagements compared to the v12.5 version.  The miles between critical disengagements, which is the average number of miles a vehicle drives before the system must be disengaged, is a key safety metric for FSD. The data now shows that v13 barely brought a 2.5x improvement, going from 200 miles to 495 miles. This is also way below the 700,000 miles Tesla once said was needed for the system to match the safety of human drivers.

At the same time, competitors like Alphabet’s Waymo robotaxi service are making substantial progress. As of early 2025, Waymo is delivering over 200,000 paid robotaxi rides per week across San Francisco, Los Angeles, and Phoenix, up from 10,000 two years ago and 150,000 in late 2024. The fleet operates fully autonomously, without human supervision. related: Can Waymo 3x Google Stock? There are also other players in China and Europe developing their own self-driving software.

Should It Still Trade Like a Growth Stock?

There are also just too many risks for Tesla at this point to justify its $750 billion market cap. Tesla’s fundamentals don’t look appealing relative to its valuation.  Growth is slowing, global risks are rising, and brand momentum is waning. Tesla sales grew by just about 1% in 2024, and consensus projects growth rates of about 9% for this year- a number that could very well be revised downwards as the year progresses, given the economic headwinds.

Moreover, Tesla stock has also typically fared worse than the broader markets during downturns.  Case in point: during the 2022 inflation shock, Tesla stock erased 73.6% of its value versus a peak-to-trough decline of 25.4% for the S&P 500. So, there could be more downsides to the stock in store.

Tesla’s fundamentals also don’t look appealing relative to its valuation. Our analysis of Tesla along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a strong operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative, having outperformed the S&P 500 and generated returns exceeding 91% since its inception.