The extreme volatility in Tesla (NASDAQ: TSLA) shares has created some excellent buying opportunities in the past. An investor buying during the last fall in early 2023 would have seen their stake go up by four times in value at its high in 2026.
These kinds of ups and downs have been par for the course for the electric vehicle (EV) manufacturer. Therefore, the current drop in the share price – hovering around 30%-35% of its recent high – could be a bargain in the making.
What’s it to be then? A chance to buy into a company on the forefront of multiple new technologies on the cheap? Or an overpriced and overvalued stock trading on weak fundamentals and unwarranted hype? Here’s what I think.
Obscenely valued?
On first glance, Tesla might be the most obscenely valued company that has ever existed. The firm makes a tidy profit making and selling its line of electric cars. And normally, a firm making billions in profits would be the sign of strong operations and a stock to be looked into.
The problem? Tesla’s earnings (around $4bn in the last full financial year) are completely out of whack with the market capitalisation of the company (over $1trn still).
It means that despite the huge drop in share price, the price-to-earnings ratio is still above 300. That dwarfs other extremely pricey stocks – data analytics giant Palantir has a somewhat puny P/E ratio of 130 by comparison.
This means there is a lot of growth expected by Tesla, and a lot of risk if that growth doesn’t come. Not to mention the emerging threat of Chinese car companies making inroads into Western markets with cheaper EVs. Time for investors to run for the hills? Perhaps not.
Worth considering?
The premium on the Tesla share price is on its research and development. The company has its finger in many pies, some related to EVs, some not at all. Between the Tesla Optimus humanoid robot, the Megapack battery storage system, its integrated solar panels or Supercharger network, there is plenty of avenues for future growth here.
The Full Self Driving might be the most promising of all. ‘Always on’ autonomous driving is hard to perfect. But the customer reviews of Tesla’s cars shows users in America regularly achieving 98% or 99% of drive time done automatically.
While vehicles controlling themselves has been touted for years now, the reality is closer than it has ever been. And Tesla could stand to benefit massively if it ‘cracks the code’ first.
It remains to be seen whether the promise of such technologies goes on to justify the eye-watering price tag of Tesla shares. I think the stock’s worth considering for those aware of the risks.
Should you invest £5,000 in Tesla right now?
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John Fieldsend owns shares in Tesla.
