Tesla (NASDAQ:TSLA) shares continue to plunge at an alarming rate. The automaker’s down 20% in the year to date, and threatening to retrace sharply below the technically- and psychologically-critical $300 per share marker.
It’s led me to wonder how the Tesla share price now looks from a GARP (Growth at a Reasonable Price) perspective.
Investing in growth shares often involves paying a premium for the possibility of surging profits and therefore substantial capital gains. The GARP strategy tries to avoid this by finding reasonably priced shares using the price-to-earnings growth (PEG) ratio.
Tesla shares are famous for being expensive. But how do they now look following recent price weakness?
Test 1
As a GARP investor, I’m always seeking a forward PEG ratio of 1 or less. This involves dividing the prospective price-to-earnings (P/E) multiple by predicted earnings growth.
Here’s how Tesla shares stack up:
| 2025 | 2026 | |
|---|---|---|
| Earnings per share (EPS) growth | 24% | 33% |
| P/E ratio | 109.3 | 84.2 |
| PEG ratio | 4.6 | 2.6 |
As you can see, the electric vehicle (EV) maker doesn’t score well.
Annual earnings are tipped to soar by around a quarter year on year in 2025, and then by around a third next year. However, Tesla’s famously high P/E ratios means it still looks super expensive on a GARP basis, even if the PEG ratio does fall sharply for next year.
Test 2
I’m not prepared to write Tesla shares off as prohibitively expensive just yet however. I also want to see how they shape up against some of the EV industry’s other big beasts.
Here’s what I found, based on their estimated earnings for the current financial year:
| Company | P/E ratio | PEG ratio |
|---|---|---|
| BYD | 21.4 | 0.8 |
| Xiaomi | 45.6 | 1.2 |
| Li Auto | 18.1 | 0.4 |
| Rivian | – 3.3 | 0.1 |
| NIO | – 4.2 | 0.2 |
Some negative P/E ratios muddy the waters a little. Rivian and NIO are tipped to remain loss-making in 2025, though predictions of bottom-line improvement leave them with positive PEG ratios.
As you can see, each of the carmakers described boasts a PEG ratio far lower than Tesla’s. In fact, each of them (bar Xiaomi) carries a PEG ratio below 1, indicating they’re undervalued at current prices.
Time to consider buying or avoiding?
So there you have it. As a potential GARP investment, Tesla shares miss the mark by a huge margin.
However, this doesn’t necessarily mean the carmaker’s a stock to avoid. Tesla’s not just about EVs after all, and has significant growth potential elsewhere (think self-driving cars, robots and artificial intelligence (AI)).
But at the moment, EVs are the Tesla’s ‘meat and potatoes’, so to speak. And to me, the dangers here are growing at alarming speed.
Competition’s rapidly growing, with China’s manufacturers in particular making rapid inroads. BYD’s sales, for instance, rocketed 41% in 2024, to 1.8m units, while Tesla’s dipped slightly to around the same level.
On top of this, Tesla’s brand power’s cratering as founder Elon Musk flexes his political muscles. The company’s European sales plummeted 45% year on year in January, which analysts have attributed to Musk’s involvement in President Trump’s controversial administration.
Tesla also faces fresh cost and supply chain pressures should global trade wars heat up.
Given its high valuation and mounting problems, I think Tesla’s a share investors should consider avoiding right now.
This post was originally published on Motley Fool
