Elon Musk Thinks Tesla Will Become the World's Most Valuable Company. I Predict Its Stock Could Plunge by 70% (or More) Instead.
Elon Musk thinks autonomous vehicles and humanoid robots could make Tesla the most valuable company in the world one day.
He might be right, but those product platforms are still years away from generating meaningful revenue, and Tesla's core business is faltering.
To make matters worse, Tesla stock is trading at a sky-high valuation that could pave the way for a sharp correction.
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Tesla (NASDAQ: TSLA) is one of the world's largest manufacturers of electric vehicles (EVs), but its CEO, Elon Musk, is no longer focused on just selling cars. He's preparing the company for an autonomous future by directing its resources into its full self-driving (FSD) software, its Cybercab robotaxi, and its humanoid robot named Optimus.
Musk believes Tesla will become the world's most valuable company by far if those product platforms are successful. But in the here-and-now, 74% of Tesla's total revenue still comes from its EV business, where sales are declining at an alarming pace.
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Musk held a conference call with investors last Wednesday to discuss Tesla's progress during the second quarter of 2025 (which ended on June 30). His comments suggest that it will be a long time before products like the Cybercab and Optimus are generating enough revenue to offset the struggling EV business, so here's why I predict Tesla stock could plunge by 70% (or more) in the meantime.
Tesla's EV deliveries continue to sink
Tesla is off to a rough start to 2025. It delivered 720,803 EVs during the first six months, which was a 13% decline compared to the same period last year. The drop in sales had a significant impact on the company's total revenue, which suffered a 9% year-over-year decline during the first quarter, followed by an accelerated drop of 12% in the second quarter.
Competition is a big reason for Tesla's sluggish sales. While the company's Model Y remains the best-selling car in a handful of countries, consumers more broadly seem to be flocking to other brands. In Germany, for example, Tesla's sales crashed by 60% in June, despite EV sales growing by 8.6% across the country overall. In other words, Tesla is rapidly losing market share in Europe's largest car market.
Affordability seems to be a major factor for consumers. China-based BYD sells its entry-level Dolphin Surf EV for around $26,000 in Europe, whereas Tesla's Model 3 (its cheapest EV) starts at $40,000. BYD's sales exploded fourfold in Germany during June, compared to the year-ago period.
Fortunately, Tesla plans to release a low-cost EV to compete. It was reportedly designed on the flagship Model Y platform, minus all of its premium features to bring the price down. It just entered production, but only time will tell whether it's enough to pull Tesla's EV business out of its slump.
Tesla's robotaxi business is still too small to offset weak EV sales
Elon Musk believes the future of Tesla's car business is autonomous. In June, the company launched a supervised, invite-only version of its planned autonomous ride-hailing platform, using its passenger EVs (like the Model Y) with its FSD software installed. They are completing autonomous trips around Austin, Texas, right now, with a human in the passenger seat to keep an eye on things.
The test lays a foundation for the rollout of the Cybercab, which is a purpose-designed robotaxi that won't have pedals or even a steering wheel. It will go into mass production next year, and Musk's goal is to have millions of them hauling passengers and even small commercial loads all day and night, earning revenue for Tesla around the clock.
Regulators currently stand in the way of a broad robotaxi rollout. Tesla's FSD platform doesn't have approval for unsupervised use in any U.S. states right now, but Musk is hopeful that will soon change. In fact, he believes the company's robotaxi business could have enough coverage to serve half of the entire U.S. population by the end of 2025, likely using a mix of passenger EVs and early versions of the Cybercab.
However, during a conference call with investors for the second quarter of 2025, Tesla's Vice President of artificial intelligence, Ashok Elluswamy, said only a "handful" of passenger EVs are currently deployed in Austin for the test program. He did say the operating region around Austin will soon expand tenfold, which should put more cars on the road, but it places the company significantly behind the competition.
Alphabet 's Waymo, for instance, is already completing over 250,000 paid autonomous trips every week across five U.S. cities completely unsupervised. The idea that Tesla can go from a handful of cars in Austin to serving half of the U.S. population within the next five months -- leapfrogging Waymo in the process -- feels very unrealistic.
Tesla's sky-high valuation sets up a potential crash of 70%
Tesla's earnings per share (EPS) sank by 18% year over year during the second quarter, which followed a 71% drop in the first quarter. Its trailing-12-month EPS now stands at $1.67, placing its stock at an eyewatering price-to-earnings (P/E) ratio of 180.7.
That makes Tesla five times more expensive than the Nasdaq-100 technology index, which trades at a P/E ratio of 32.5. It's also three times more expensive than Nvidia -- one of the world's highest-quality and fastest-growing companies -- which trades at a P/E ratio of 54.3.
If Tesla's earnings continue to shrink, which seems likely based on the state of its EV sales, then its P/E ratio is going to keep climbing unless its stock price plunges. As things stand today, Tesla stock would have to plummet 70% just for its P/E ratio to match Nvidia's (and even further to match the Nasdaq-100). I think that's a real possibility in the near term.
The picture might look a little different for investors who are willing to hold Tesla stock for the long term. Dan Ives from Wedbush Securities thinks the company's robotaxi business presents a trillion-dollar opportunity, but that figure might be conservative if it winds up serving half the U.S. population eventually.
Then there is the Optimus humanoid robot, which could be a hot product in every manufacturing facility and even in every household one day. It's still an early-stage product, but Tesla just announced version three, which irons out some of the kinks from the previous models. Musk thinks Tesla will be producing 1 million Optimus robots annually five years from now, and he previously said this product could deliver $10 trillion in revenue for the company over the long term.
Investors who believe in Tesla's futuristic product platforms could be handsomely rewarded in the long run if they buy the stock right now, despite its sky-high valuation. However, I think patient investors might get a cheaper entry point in the coming months.
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(U.S. Dollars in thousands) June 30, June 30, 2025 2024 2025 2024 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Cash flow from operating activities: Net income 4,222 1,664 8,566 442 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,865 3,028 6,017 5,971 Share-based compensation 5,603 6,302 11,501 13,049 Amortization of premium, accretion of discounts and accrued interest on marketable securities, net (93) 80 (254) 7 Increase (decrease) in accrued interest on bank deposits (2,324) 5,468 (4,114) 5,459 Increase (decrease) in accrued severance pay, net 15 17 76 (41) Decrease (increase) in trade receivables, net 2,171 (5,013) (6,042) (5,232) Decrease (increase) in other receivables and prepaid expenses and other long-term assets (951) (199) (1,137) 406 Decrease in inventories 199 744 718 1,748 Increase (decrease) in trade payables 450 (1,627) (1,485) (221) Increase (decrease) in deferred revenues (1,345) 7,494 16,478 16,388 Increase in other payables and accrued expenses 2,422 5,310 5,586 6,793 Operating lease liabilities, net 1,258 (238) 1,024 (617) Net cash provided by operating activities 14,492 23,030 36,934 44,152 Cash flows from investing activities: Purchase of property and equipment (2,660) (1,034) (3,772) (2,808) Proceeds from (investment in) other long-term assets, net (19) 19 90 (6) Proceeds from (investment in) bank deposits, net (13,801) 6,734 (40,913) (11,164) Investment in, redemption of and purchase of marketable securities, net (5,239) (13,499) 10,955 (9,997) Proceeds from other deposits - - 5,000 - Net cash used in investing activities (21,719) (7,780) (28,640) (23,975) Cash flows from financing activities: Proceeds from exercise of share options (3) 3 1 3 Repurchase of shares - - - (839) Payment of contingent consideration related to acquisition (3,167) (3,077) (3,167) (3,077) Net cash used in financing activities (3,170) (3,074) (3,166) (3,913) Increase in cash and cash equivalents (10,397) 12,176 5,128 16,264 Cash and cash equivalents at the beginning of the period 114,239 74,626 98,714 70,538 Cash and cash equivalents at the end of the period 103,842 86,802 103,842 86,802
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Instead, they continued to expand and grow, becoming two of the world's largest companies. While they are too large at this point to replicate their past returns, they remain excellent buy-and-hold candidates for a long-term portfolio and can serve as a blueprint for success for anyone looking for the next big thing. 1. Amazon E-commerce giant Amazon (NASDAQ: AMZN) started as one of the pioneers of online shopping. Amazon went public in 1997, and $1,000 invested then is worth over $2 million now. Dividends contribute a significant portion of the stock market's historical returns -- but not Amazon's, as the company has never paid a dividend, choosing instead to reinvest its profits in growth and expansion. Today, Amazon is more than the dominant online retailer in the United States. It has built several successful businesses, including its Prime subscription, a digital advertising unit, the Prime Video streaming service, and its cloud computing platform, Amazon Web Services (AWS), which has become the world's leading cloud services company and is also Amazon's primary profit center. AMZN Total Return Price data by YCharts Amazon is now a multitrillion-dollar company by market cap, so its highest-growth years are probably behind it. However, there is still plenty of long-term upside here. E-commerce represents less than one-fifth of total retail spending in the United States. Additionally, cloud computing has a long runway ahead as companies migrate from localized servers to the cloud, and that was before artificial intelligence (AI) emerged as a monster growth opportunity a few years ago. It won't be easy to find another company like Amazon. That said, Amazon's success demonstrates the upside of companies operating in vast addressable markets, where companies can grow for decades. Going beyond that, those companies should have a culture obsessed with innovation, and a curiosity to explore and ultimately pursue new opportunities. Amazon's evolution beyond e-commerce has ultimately shaped it into what it is today. 2. Microsoft Technology giant Microsoft (NASDAQ: MSFT) has an unmatched legacy in the broader technology sector. The company launched its Windows 1.0 operating system software in 1985, setting Microsoft on a path to becoming the global juggernaut it is today. That journey has seen the stock turn a $1,000 investment in 1986 into over $2 million. Windows remains the leading PC operating system, but Microsoft's business has expanded dramatically over the years. The Microsoft tech empire now encompasses Microsoft 365 (including Word, Excel, PowerPoint, etc.), Azure cloud, LinkedIn, Microsoft Teams, Bing, Internet Explorer, Microsoft Dynamics, Xbox, and more. The countless consumers and companies that use its products each day create powerful network effects, making it challenging to dethrone Microsoft. When the company introduces something new, such as its Copilot AI assistant, it already has easy access to all those existing customers. MSFT Total Return Price data by YCharts Few companies can match Microsoft's financial prowess at this point. It's one of just two companies with a better credit rating than the United States government, generates tens of billions of dollars of cash profits each year, and is investing heavily in AI as the next technology frontier that it hopes will fuel the company's growth over the next decade and beyond. Despite all this, Microsoft also pays a dividend that it has increased for 23 consecutive years. Microsoft isn't the best at everything, but it seldom misses out entirely on an opportunity -- whiffing on smartphones was a rare exception. Investors hoping to find a similar success story in the future will want to look for companies that recognize the power of network effects and lean into them as Microsoft has. Should you invest $1,000 in Amazon right now? Before you buy stock in Amazon, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $633,452!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,083,392!* Now, it's worth noting Stock Advisor's total average return is 1,046% — a market-crushing outperformance compared to 183% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 29, 2025 Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
