Within six months to December 22 Tesla (NASDAQ:TSLA) share price increased by approximately 50%. However, all the metrics I exploit to assess the group’s stock market valuation indicate that its shares are extremely pricey. However, as this recent rally shows, many people still see some value in the electric car maker.
Apparently I’m missing something. What could it be?
Beyond the Richter Scale
For the four quarters ending September 30, Tesla reported earnings per share (EPS) of $1.77. This means the company’s shares are currently trading at 275 times historical earnings. However, this figure has been adjusted for the loss incurred on cryptocurrencies. Factor this in and reported EPS drops to $1.44 and the price-to-earnings (P/E) ratio increases to 339.
An alternative valuation measure is the P/E to growth ratio (PEG). Generally speaking, a number below one indicates good value. For Tesla to have a PEG of less than one, its earnings would have to grow enormously. They are not. The group’s revenues in the third quarter of 2025 were 12% higher than a year earlier.
The situation is similar with the company’s balance sheet. As of September 30, its book value (assets minus liabilities) was $81 billion. Its current market capitalization is 18.6 times higher.
Tesla’s valuation looks even more incredible compared to some of the more established names in the industry. To take Ferry as an example. It has a P/E ratio of less than 10.
| Four quarters to 30/9/25 (unless stated) | Tesla | Ferry |
|---|---|---|
| Income (billion dollars) | 95.6 | 189.6 |
| Market capitalization as of 22/12/25 (billion dollars) | 1520 | 52 |
| Earnings per share ($) | 1.77 | 1.35 |
| Share price at 22/12/25 ($) | 486 | 13 |
| Price to earnings ratio | 275 | 9.6 |
But wait…
By now, I suspect millions of the company’s devoted fans are screaming in frustration, saying I’m missing the point. They will no doubt point out that Tesla is a technology company, not a car manufacturer. They will suggest that comparison with Ford is pointless. I suspect they will argue that its value lies in its future potential, particularly in autonomous driving technology, robo-taxis and robots.
But even at its peak, technology-focused Magnificent 7 (which owns Tesla) was trading at a compound multiple of just over 50 times earnings. Nvidia it would be priced almost 10 times higher if assessed on the same basis as its automotive cousin. However, despite my concerns, the consensus from 50 analysts is that Tesla is only slightly overvalued.
And if Tesla manages to get things right, the potential is huge. Before Elon Musk’s massive trillion-dollar pay package was approved earlier this year, ARK Invest predicted that the company’s robot taxi network would generate at least $600 billion in annual revenue by 2029. Others predict even greater gains from the Optimus robot program. Musk himself believes this could represent 80% of Tesla’s market capitalization. He predicted that this could push Tesla’s stock market valuation to $25 trillion in 2024.
Time will tell if these numbers are realistic, but I admit I have my doubts. Of course, history suggests that I will be proven wrong (again). Tesla shares have been overvalued for as long as I can remember. And yet many people – including some institutional investors – have made a lot of money from their shares in the group. Plus, I’m sure there are plenty of other people sitting on impressive profits on paper. But still, I can’t bring myself to invest.
