Who doesn’t have a view on Tesla (NASDAQ: TSLA)? Some investors swear by it, others see a bubble waiting to burst. The same applies to Elon Musk.
While I acknowledge Musk’s brilliance and Tesla’s stellar success, I can see five compelling reasons for me to shun its shares today.
1. Elon Musk’s politics.
Musk loves to mix it up but his outlandish political positions risk alienating Tesla’s core customer base.
Many Tesla buyers see their purchase as a statement in favour of sustainability. Musk’s populist alignment and social media antics risk driving them away. I can’t imagine any other CEO goading customers like he does.
I fear many will start associating its brand with political division rather than cutting-edge tech and eco-responsibility.
2. He’s stretching himself too thin
Musk is a visionary and I’m not, but we have one thing in common. Both of us are handed just 24 hours a day.
Obviously, he sweats his allocation harder than I do. But with Tesla, SpaceX, Neuralink, The Boring Company and Twitter (now X), Musk needs to be cloned to keep up (he’s probably working on that). Throw in his DOGE work for President Trump, and I’m wondering if Tesla is getting the focus it needs, especially with the Cybertruck rollout facing delays.
3. China’s electric vehicles are catching up
China has a history of mastering Western technology, then producing it faster and cheaper. As with DeepSeek. The country’s EV sector is no exception. Chinese manufacturers like BYD are scaling up, offering high-quality EVs at lower price points.
Tesla is still ahead in terms of technology and brand recognition, but has had to slash prices to remain competitive in China. If Chinese carmakers start dominating global markets, Tesla could be slashing more than prices.
4. The valuation remains sky-high
Despite a rocky few years, Tesla’s share price still carries an eye-watering valuation. With a price-to-earnings ratio of almost 110, triple the S&P 500 average, the stock is priced as if Tesla is still in its rapid growth phase. But with slowing sales growth, increased competition and economic uncertainty, that valuation’s harder to justify.
Yes, Tesla has been pricier in the past. But if Magnificent Seven magic wears off and markets one day treat Tesla like a traditional car company, that valuation could slump.
5. It’s too volatile for me
The share price flew in 2024, climbing 63% after a volatile start. The company missed revenue expectations in Wednesday’s (29 January) earnings report, with profits declining year on year. Yet the shares still climbed! Tesla/Musk can do that, but for how much longer? It has also faced scrutiny over its self-driving technology, with federal investigations into its autopilot system.
But don’t listen to me! I decided Tesla was overhyped and overvalued years ago, and investors who took a different view have left me for dust. Along with an army of short sellers.
Tesla remains an industry leader in EV technology and battery innovation. If it can deliver on its robotaxi plans and new Model Y upgrades, I’ll be eating crow as well as dust. But for now, given the risks, and China’s DeepSeek disruption, I’ll take a back seat.
This post was originally published on Motley Fool
