It’s Time to ‘Pump the Brakes,’ Says Analyst on Tesla Stock (TSLA)

Tesla (TSLA) is one of the most popular stocks among both Wall Street and retail investors, and understandably so, as the stock has generated phenomenal returns over the years, yielding a total return of 1,854% over the past decade.

It has also captured the public’s imagination with its forays into exciting fields like robotics and self-driving cars, as evidenced by this week’s Robotaxi launch, which caused shares to surge 8% on Monday but have since pared gains to now trade ~2% lower.

Despite this rally driven by Robotaxi enthusiasm, the stock is down nearly 30% from its 52-week high, which may lead some investors to look for the opportunity to ‘buy-the-dip’ on this popular name. However, the stock hardly appears to be a bargain at this point in time and may decline further.

TSLA’s Extreme Valuation Raises Eyebrows

While Tesla (TSLA) is an intriguing self-driving stock, and the limited Robotaxi launch is generating considerable investor excitement, the stock is incredibly expensive from a valuation perspective. 

Shares of Tesla trade at an astronomical valuation of 169x 2025 earnings estimates. It’s hard to understate how frothy this valuation is, but to put it into perspective, it’s over eight times as expensive as the S&P 500 (SPX), which trades for 21x forward earnings estimates (and keep in mind that this is in and of itself a historically above-average valuation for the index). 

You can make the case that Tesla should be worth more than the ‘average’ company in the S&P 500, as the company and the rest of the Magnificent Seven stocks are some of the most dominant and innovative companies in the world. But not only is Tesla more expensive than the average stock in the S&P 500, it’s also considerably more expensive than all of its magnificent seven peers, as TipRanks data shows.

For comparison, Microsoft (MSFT) trades at 36x 2025 earnings estimates, while Amazon (AMZN) and Nvidia (NVDA), which have long been derided by many value investors for their lofty valuations, trade at similar valuations of 34x forward estimates for 2025 and 2026, respectively. Meta Platforms (META) and  Apple (AAPL) both trade for roughly 27x 2025 estimates. Alphabet (GOOGL) is currently the cheapest stock in the Magnificent Seven, trading for just 18x 2025 estimates. 

TSLA is Priced for More Than Perfection

When a stock is trading at such elevated valuation levels, it’s often said to be “priced for perfection.” But in this case, it’s difficult to argue that everything is unfolding perfectly—significant risks remain. Elon Musk is widely regarded as a visionary CEO and brilliant engineer, but his tendency to court controversy is unparalleled, and it’s increasingly cutting across political lines.

While alienating one side of the political spectrum might be manageable—potentially offset by support from the other—Musk has managed to provoke backlash from both the left and the right in a relatively short period of time. His public support for Donald Trump during the presidential election alienated many on the left, while his subsequent high-profile dispute with Trump has also drawn criticism from the right.

Although the details have been widely reported, the broader concern is that this bipartisan controversy could ultimately affect consumer sentiment and impact sales. When you pair this with the stock’s lofty valuation, the potential downside risk becomes more pronounced.

If Robotaxis are Overhyped, TSLA Could be in Trouble

Let’s take a closer look at Tesla’s Robotaxi initiative, which has been driving the stock’s momentum this week following a high-profile launch event in Austin. While the event generated significant media buzz, the substance of the launch was more modest.

According to Reuters, only a small number of Teslas—each with a human safety monitor in the front seat—provided rides within a tightly geofenced area of Austin. Importantly, this was a private, invite-only event aimed at investors, influencers, and brand enthusiasts, rather than a public rollout. Many attendees posted their ride experiences on social media, adding to the event’s visibility.

Tesla’s Cybercab on display at the Westfield Century City Mall in December 2024.

That said, the launch was limited in both scale and scope. Even within this controlled environment, there were reported issues. The Verge noted an incident in which a Model Y briefly drove the wrong way down a street, while Tesla critic Ed Niedermeyer highlighted another case where a vehicle abruptly braked in traffic in response to a stationary object outside its path. These and similar reports have already prompted regulatory attention, with the National Highway Traffic Safety Administration reaching out to Tesla shortly after the event.

It’s also worth noting that Tesla is not alone in the autonomous vehicle space, and some competitors appear to be significantly further along. Alphabet’s (GOOGL) Waymo, for instance, is already operating at scale, providing over 250,000 rides per week across cities like Los Angeles, San Francisco, and Phoenix. Having recently surpassed the 10-million ride mark, Waymo is quietly leading in real-world deployment, despite receiving far less media attention than Tesla. In this context, while Tesla’s ambitions are noteworthy, its current progress in the Robotaxi space still lags behind established players.

Is Tesla a Buy, Sell, or Hold?

Turning to Wall Street, TSLA carries a Hold consensus rating based on 14 Buys, 12 Holds, and nine Sell ratings assigned in the past three months. The average TSLA stock price target of $291.31 implies 10.5% downside potential over the coming year.

See more TSLA analyst ratings

Sky-High Valuation Leaves Little Room for Error in Tesla’s Stock

While shares of Tesla have regained momentum based on robotaxi excitement, it’s likely a good time to pump the brakes on this enthusiasm. The limited nature of the launch, strong competition already in place (and further ahead of Tesla), and the regulatory attention the company is already facing illustrate the challenges ahead. 

Robotaxis aside, Musk has demonstrated a remarkable ability to make enemies on both sides of the U.S. political divide, which has already led to a consumer backlash and could further harm sales. 

Despite these developments, the stock remains priced for perfection, trading at a sky-high price-to-earnings multiple—approximately 8.5x higher than the S&P 500 average—and at a premium well above any of its peers in the so-called “Magnificent Seven.” The average analyst price target implies a potential 10% downside, and the consensus Hold rating underscores the elevated risk associated with the current valuation.