TLDR:
- Tesla shares gained 0.5% in premarket trading Tuesday despite trading at 172 times estimated 2025 earnings
- Morgan Stanley values Tesla at $1.3 trillion but attributes only $240 billion to its automotive business
- Xiaomi will unveil its Model Y competitor, the YU7 SUV, on May 22 in China
- Tesla plans limited robotaxi testing in Austin with just 10-20 vehicles and remote human oversight
- The stock has climbed 44% since Q1 earnings even as Wall Street lowered future earnings forecasts
Tesla’s stock continues to puzzle market watchers. The EV maker saw its shares rise 0.5% in premarket trading Tuesday to $343.88, outperforming the broader market.
This upward movement comes despite growing questions about the company’s stretched valuation. Tesla now trades at an eye-watering 172 times estimated 2025 earnings.
The situation has left many value-focused investors scratching their heads. A year ago, Tesla shares were around $200 with Wall Street projecting roughly $3 in 2025 earnings per share.
Today, with shares above $340, analysts have actually lowered their 2025 EPS estimates to below $2. In other words, the stock has climbed while earnings forecasts have fallen.
Morgan Stanley analyst Adam Jonas addressed this paradox in a Monday note. He believes the valuation issue will get “worse before it gets better.”
Yet Jonas maintains a Buy rating with a $410 price target. This values Tesla at approximately $1.3 trillion.
What explains this seeming contradiction? Jonas sees Tesla primarily as a technology company, not an automaker.
He values Tesla’s car business at just $240 billion, or $75 per share. The bulk of his valuation comes from the company’s AI-related ventures, particularly self-driving technology.
The China Challenge
As Tesla’s stock price climbs, a new challenger has emerged in China, one of the company’s most important markets.
Chinese tech giant Xiaomi announced plans to unveil its YU7 SUV on Thursday, May 22. This midsize crossover will compete directly with Tesla’s Model Y.
Xiaomi has already made waves with its SU7 electric sedan. The sleek vehicle sold 135,000 units in 2024, with sales expected to more than double in 2025.
The SU7 has won over Chinese buyers with its striking design and tech-focused interior. The car runs on HyperOS, a modified version of Android.
This approach—treating cars as extensions of digital devices—has proven effective in the Chinese market. Expectations are high for the YU7 to follow a similar path to success.
News of this emerging competitor may have contributed to Tesla’s 2.3% stock drop on Monday. The broader tech sector also declined due to economic concerns.
Autonomous Driving Reality
Tesla’s massive market valuation rests heavily on its autonomous driving ambitions. However, recent updates suggest a more measured approach than some expected.
Morgan Stanley’s Jonas recently met with Tesla’s investor relations team to discuss the state of its autonomous driving program. The meetings revealed smaller-than-expected plans for robotaxi testing.
Tesla’s Austin robotaxi fleet will be “very low, think 10 to 20 cars,” according to Jonas. These vehicles will rely on “plenty of tele-ops” for safety, meaning remote human operators will intervene when needed.
This cautious approach contrasts sharply with competitors like Alphabet’s Waymo. The Google sister company already conducts around 250,000 robotaxi rides weekly in the US.
Tesla and CEO Elon Musk maintain that their vision-based system is more scalable. They argue that millions of Tesla EVs already on roads can be upgraded to self-driving once the software is ready and AI systems are fully trained.
Regulatory scrutiny may slow these plans. The National Highway Traffic Safety Administration is currently investigating Tesla’s Full Self-Driving system.
The agency has requested detailed information about Tesla’s robotaxi development plans. This oversight could push back the company’s timeline.
Despite these challenges, Tesla stock has shown remarkable resilience. Shares have risen for four consecutive weeks, cutting year-to-date losses to around 16%.
The company recently strengthened its board by adding Chipotle president Jack Hartung. He could help resolve the ongoing question of how to compensate Musk after a Delaware judge invalidated his $56 billion pay package.
