Tesla Investors Pivot to Dreams of AI Future as EV Sales to Slow

(Bloomberg) — In the stock market’s rarefied air where mega-cap technology behemoths reside, Tesla Inc. stands out — but for all the wrong reasons. Chief among them is its stunning lack of earnings growth while its stock price continues to soar.

The Elon Musk-led electric vehicle-maker is expected to post a 25% drop in third-quarter profits from a year ago when it reports earnings Wednesday afternoon, according to data compiled by Bloomberg. The decline is nothing new, as Tesla’s results have been in retreat for multiple years.

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WATCH: What to watch for in Tesla earnings. Source: Bloomberg

What is notable, however, is the way Tesla shares have been impervious to the drop, more than doubling in the past 12 months. It’s a tribute to Musk’s success in turning investors’ attention away from selling EVs and toward his vision of an artificial intelligence company focused on self-driving cars and humanoid robots. The stock fell as much as 3.1% Wednesday ahead of the results due after the market close.

“The Tesla story is never really about the current quarter, but rather the broader expectations that it can keep innovating and pivoting to the future,” said Daniel Newman, chief executive officer of the technology research and advisory firm the Futurum Group.

This hope for the future while discounting the present has taken Tesla’s market valuation to dizzying heights. The shares trade at a whopping 195 times expected earnings over the next 12 months as of Tuesday’s close, up from less than 80 times in April. It’s the fourth most-expensive stock in the S&P 500 Index, trailing only Warner Bros Discovery Inc., Palantir Technologies Inc. and Boeing Co.

The company’s valuation is head and shoulders above its peers in the Magnificent Seven: Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp. and Nvidia Corp. The Bloomberg Magnificent Seven Index trades roughly 33 times expected earnings as of Tuesday’s close. After Tesla, the next highest valuation in the group belongs to Apple at just over 32 times.

Tesla’s problem is that right now it’s a company that manufactures cars, trucks, solar panels and energy storage systems. Its AI vision is years, if not decades, away from generating sales, much less profits. So EVs are the primary way the company can bring in the cash required for its AI investments. And that business is facing slowing demand as the Trump administration pulls federal incentives that had encouraged EV adoption, such as a $7,500 tax credit for buying EVs that expired in September.

After Tesla’s plan to sell cheaper EVs was largely met with a shrug, analysts say Tesla’s sales may start to crater this month. Its fourth-quarter deliveries are expected to be around 425,000, according to Barclays analyst Dan Levy. That would be below consensus estimates of about 448,000. The company delivered about 497,000 units in the third quarter.

“Fourth-quarter sales don’t look good,” said Bloomberg Intelligence analyst Steve Man. “Falling off a cliff is probably a good way to characterize it.”

Tesla representatives didn’t respond to a request for comment.

Expectations for Tesla’s earnings are falling too. Analysts now project it will post a profit of $1.75 a share for 2025, down from $2.66 a share just six months back. The consensus revenue estimate has fallen by 12% over the same period.

That Tesla’s stock price is racing ahead and giving the company such a lofty market valuation isn’t necessarily a problem. It’s been here before. The difference is that when the shares previously acted like this the company was significantly smaller. This kind of extreme valuation is far less common among businesses of Tesla’s current size. It has a market capitalization of roughly $1.5 trillion, while Palantir is worth $430 billion, Warner Brothers Discovery’s market cap is less than $50 billion, and Boeing is at around $160 billion as of Tuesday’s close.

Compared to other automakers Tesla’s valuation is even further out of line. Ford Motor Co. and General Motors Co. both have price-to-earnings multiples in the single digits.

“The market clearly looks at it as something more than a car company,” said Mark Malek, chief investment officer at Siebert Financial. “However, it is at the end of the day, a car company. It would be interestingly easier for me to value if the company was a pure play AI company.”

The difference is that the market’s longest-running AI darling, Nvidia, is expected to post 50% profit growth this year. And other mega-caps are projected to report annual earnings growth ranging from the high single digits to the mid-teens.

“While names like Microsoft and Nvidia are monetizing AI today, Tesla’s valuation is anchored in what it might become with autonomy and robotics,” said Dave Mazza, chief executive officer of Roundhill Financial. “That gap between vision and execution is what will define its next leg.”