The academically fascinating Tesla

Paraphrasing Charlie Munger, I would neither buy nor short Tesla, Inc. at present. That said, from an academic perspective, it is one of the most fascinating publicly listed companies, one I frequently find myself studying with a sense of curiosity and disbelief. It stands as a poster child for the changing of the guard over the past decade: the rise of mega-cap technology stocks led by charismatic and unconventional founders.

With relatively slim pickings in traditional value stocks, Tesla provides a compelling subject for deeper analysis.

The company’s price-to-earnings ratio sits at around 330x. It is worth pausing on what this implies: at current earnings levels, it would take approximately 330 years for earnings per share to cover the price paid for each share. Other valuation metrics similarly reflect an extraordinary level of confidence in Tesla’s future.

Founded in 2003, Tesla experienced a dramatic re-rating beginning in 2019. Shares that traded at roughly $15 in mid-2019 rose to around $380 by late 2021, with the valuation broadly holding at elevated levels since. This has propelled Tesla to become the world’s most valuable automaker, despite accounting for only around 2–3% of global vehicle sales. Even within electric vehicles, Tesla represented just 7–8% of global EV sales in 2025.

From a traditional perspective, the fundamentals appear less compelling. Profit margins of roughly 4% are modest, share dilution has occurred through new issuance, and market share is increasingly being challenged by competitors.

Tesla is pursuing a range of ambitious and, in some cases, speculative opportunities: AI leadership, robotaxis, humanoid robotics, and battery storage. While the company has achieved some success in energy storage, competition is intensifying there as well. In areas such as autonomous vehicles and robotics, significant technological and regulatory hurdles remain. Even if these technologies are realised, the question remains whether there will be immediate and widespread market adoption.

A useful historical analogy is the automatic gearbox. First introduced in the late 1930s, it took roughly 70 years to become the globally dominant transmission. It raises a valid question: why should fully autonomous vehicles, arguably a far more complex and disruptive innovation, be adopted more rapidly?

Despite these concerns, Tesla’s market capitalisation remains extraordinary relative to its peers:

• Tesla, Inc.: ~$1.2–1.4 trillion
• Toyota Motor Corporation: ~$200–250 billion
• BYD Company: ~$90–120 billion
• Volkswagen Group: ~$40–60 billion
• General Motors: ~$50–60 billion

One might argue that this valuation reflects exceptional management. However, with the anticipated float of SpaceX and Elon Musk’s public support for Donald Trump, the CEO’s attention appears, at least, divided across multiple ventures. His political positioning may also have introduced some degree of brand friction with segments of Tesla’s traditionally environmentally conscious customer base.

Despite all of this, “Mr Market” continues to support Tesla’s valuation. Several narratives underpin this confidence:

• “Tesla is not an automaker but a technology company.” While compelling, the majority of Tesla’s current revenue still comes from vehicle sales, with energy contributing a smaller share.
• Autonomous driving leadership. The thesis suggests that if Tesla solves full self-driving first, it could dominate a global mobility network. However, significant technical and regulatory challenges remain, and even success does not guarantee durable market dominance.
• The ongoing EV transition. While the global shift to electric vehicles continues, Tesla is losing market share, and EV growth is slowing in some regions even as hybrid sales accelerate.
• Energy storage and grid infrastructure. Tesla has been a pioneer in this space, but increasing competition—often at lower cost—raises questions about long-term dominance.
• AI and robotics optionality. The potential here is enormous, but so too are the uncertainties. Execution must be both technically successful and commercially viable in a highly competitive field.
• Vertical integration and cost leadership. Tesla’s manufacturing model is often cited as a strength, yet margins have recently trended downward rather than upward.

Much of the enduring support for Tesla is tied to the reputation of Elon Musk. Supporters view him as a figure capable of solving seemingly intractable problems, with a track record of building highly valuable companies. His willingness to make bold, long-term bets reinforces this narrative. The open question is how long that narrative can continue to sustain the company’s valuation.

As John Maynard Keynes is often quoted: “The market can remain irrational longer than you can remain solvent.” Tesla’s valuation has persisted through the COVID bear market, the 2021 liquidity rotation, more recent periods of sales weakness and the current liquidity movements, events that might have forced a reassessment in other companies.

For that reason, while I would hesitate to short the stock, Tesla remains a uniquely fascinating case study which I will watch with popcorn in hand.