Is Tesla stock wildly overpriced – or a possible bargain?

Simply put, it has been a wild 2025 ride so far for Tesla (NASDAQ: TSLA). At the start of the year, the Tesla stock price was over $400. It has since hit $428 – and $222.

But while the short-term gyrations are dizzying, I am a long-term investor and so prefer to stand back and look at the bigger picture. Tesla has soared over the past year, with the stock now 90% higher than it was just 12 months ago.

Over a five-year timeframe, the gain has been a phenomenal 530%.

I have long admired the business. It has been on the ropes before and fought back. It has established a leading electric vehicle (EV) business at breakneck speed, is growing its power storage business at a rate of knots and benefits from a strong brand, a vertically integrated business model that cuts out marketing costs, and lots of proprietary technology.

So could now be the moment to add it to my portfolio? Or might it still have a long way to fall?

Old but valid valuation concerns

I reckon the share price could still have a long way to fall and will not be investing for now.

Almost for its entire life as a listed company, a vocal and large number of investors have been scoffing at what they saw as an unsustainable share price for Tesla. Yet, as I outlined above, over time it has moved upwards seemingly untethered to many traditional valuation metrics, such as share price to earnings per share.

Nonetheless, that price-to-earnings (P/E) ratio now stands at 189. To me that does not look just overpriced, it looks untouchably red hot. It is far above what I would be willing to pay for Tesla stock.

Not only that, but I think things could yet get worse from here. Last year, Tesla’s vehicle sales volumes declined slightly. The first quarter of 2025 saw a much sharper year-on-year decline, as well as a tumble in earnings.

With the EV market now highly competitive, thanks to the likes of BYD, and while Tesla is losing market share, I think earnings could fall this year and perhaps beyond. So the valuation metric I mentioned above may not even fully capture how expensive the prospective P/E ratio is.

Why Tesla might still be a long-term bargain

Despite all that, a lot of investors continue to keep the faith. Tesla’s car business has long been a battle against bad odds, but management has proven time and again it has been able to manoeuvre the carmaker forward at speed.

New revenue streams slated to come on stream soon include making lorries at scale. Other potential product lines include automated taxis and robotics. Both could be huge. Tesla has a compelling combination of hardware manufacturing know-how, software capability and user data to help it carve out a strong competitive position.

On top of that, the power storage business could keep growing very fast, potentially making a significant contribution to the company’s top and bottom lines in years to come.

If that all goes well, today’s Tesla stock price may yet look like a bargain in the rear view mirror.

But getting it all right is a tough task. It remains to be seen whether the company can pull it off. For now, I will not be buying Tesla stock.

The post Is Tesla stock wildly overpriced – or a possible bargain? appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.