Tesla has a market capitalization as of this writing of $780 billion. It made around $14 billion of profit in 2023 and $7 billion in 2024. A good chunk of profit comes not from selling cars but from regulatory credits. It sold fewer cars in 2024 than in 2023. Unless we see a significant shift change in battery capacity, speed of charging, and improved quality and availability of charging infrastructure, we have reached peak EV penetration (I wrote about this earlier).
However, today Tesla is not trading based on car sales but on future dreams of self-driving robo-taxis, robots, semis, and whatever else Elon dreams up. The car company may be worth $100–180 billion; the rest is what investors are willing to pay for Elon’s dreams.
Quick thoughts on each dream:
Self-driving: I would not trust my life or my kids’ lives to a car company that only uses cameras. They are passive sensors that have limited range and are easily impacted by bad weather. I’ve used Tesla self-driving software – it is great most of the time, except when it’s not – and then it might kill you or others.
Robo-taxis: They may work in geo-fenced areas, but they pose a huge reputational risk to Tesla. One death and this business is done. That’s what happened to Uber’s self-driving business, and why Google’s Waymo has taken a much more conservative route. It uses radar/lidar and launched the service in geo-fenced areas first.
Semis: They were announced in 2017 and were going to hit the road the next year. They are still not out there. I suspect Elon is waiting for a breakthrough in battery technology.
Robots: Exciting, huge market, but this will be a crowded field.
New competition: There are lots of Chinese EVs invading Europe and the rest of the world. BYD looks like a real competitor.
China looked like a great opportunity for Tesla, but may turn into a liability if the trade war intensifies.
Finally, though at times he seems superhuman, Musk is constrained by the number of hours in the day. As of today he is running Tesla, SpaceX, Twitter (x.com), xAI (the maker of Grok – a ChatGPT competitor), The Boring Company, Neuralink, and oh, yes, DOGE. The EV market is getting more, not less, competitive. Tesla needs an undistracted Musk.
One last thought: folks have been telling me that Tesla declined by 40% off its high. I want to offer this gentle reminder: it is the same price as in November 2024 when President Trump got elected. Trump was supposed to be a huge tailwind for Tesla, and may still be for the approval of robo-taxis, but so far he has ended up being a huge headwind for Musk’s brand.
We live in a very politically charged environment and a divided country. Half of America and the bulk of Europe hates Musk and thus Tesla (though I’m sure they love him in Russia). Anyway you look at it, this is not helping Tesla’s brand.
How can we protect the gains we have made, if the market enters a deep bear phase? How do we hedge the portfolio?
I have several answers to this question.
First, we don’t own the market. I keep repeating this, but it’s important to remember, especially in a recession. The market – the average stock listed in the US – is very expensive, but your portfolio looks nothing like “the market.” In fact a good chunk of your portfolio is outside of the US, in markets that are not nearly as expensive as the US.
Second, as our stocks approach fair value, we’ll be trimming or selling them. We have done some of that already.
Third, it is impossible to completely hedge out your market exposure economically. We can take large swaths of capital and buy put options, but to reduce short-term volatility we would have to give up a huge amount of return. We are not going to do that.
Fourth, we are going to be opportunistic about limited hedging. Our track record with hedging is mixed: our out-of-the-money puts on indices expired worthless, but our costless UBER collar twice was profitable.
Fifth – and this is the most important point – volatility is not risk. Risk to us is permanent loss of capital. As we analyze and value individual stocks, we look at them as businesses, and we require a margin of safety.
This is not what index fund investors are doing. Over the last fifteen years, index investing has turned into a religion that promises never-ending returns from stocks, no matter how expensive the stock market might be. “Buy the dip” and “never sell” have become this religion’s commandments. This faith has received endless reinforcement from stock market appreciation… so far.
Of course, as stock market growth outpaces earnings growth, these dollars invested in stocks buy less and less. But inflows never end. In their defense, investors typically keep doing what worked for them. Most are given a menu of index funds they can buy in their 401k. They check off the box, and then billions of dollars buy the index every month, with no research and no attention paid to how much these dollars buy per unit of earnings and cash flows. The longer this cycle lasts, the higher stocks will climb the cliff from which they will eventually fall.
This is where things get nuanced, and this is where risk becomes volatility, because in the case of downside volatility (nobody looks at price appreciation as risk) there may be a semi-permanent loss of capital – losses or near-zero returns for a decade or two.
“The market” is a somewhat nebulous entity to wrap your hands around. Instead, consider Microsoft, Qualcomm, or Wal-Mart. It took them a decade or longer to return to their 1999 levels. A decade is forever in the stock market, especially when you’re losing money. Only a few investors who bought them in 1999 held on through 10–15 years of negative or no returns before things turned around. This is why I am so glad we don’t own the market.
Key takeaways
- Tesla’s $780 billion market value is largely based on future dreams (robo-taxis, robots, semis) rather than current car sales, with the actual car business potentially worth only $100-180 billion.
- Each of Tesla’s future ventures faces significant challenges: self-driving technology relying solely on cameras poses safety concerns, robo-taxis carry massive reputational risk, promised semis remain unreleased, and the robot market will be fiercely competitive.
- Tesla market value may be undermined by Elon Musk’s divided attention across multiple companies (SpaceX, Twitter, xAI, etc.) and his politically polarizing personal brand, which has alienated potential customers.
- In contrast to index fund investing (which has become almost religious with mantras like “buy the dip” and “never sell”), our investment approach focuses on individual businesses with margins of safety.
- Rather than attempting complete portfolio hedging (which sacrifices returns), we’ll trim overvalued positions, seek opportunistic hedging, and remember that our diversified portfolio doesn’t mirror the expensive broader market.
Mr. Katsenelson noted that “improved quality and availability of charging infrastructure” would be necessary to get past the current peak in adoption of EVs. Tobias Hume then disagreed with the term “peak” but described how companies like NVVE could provide that “improved quality and availability.” So perhaps there is more agreement than disagreement between the two viewpoints? My questions for Tobias Hume are a follow-up: what factors will determine when “the need for EV-grid integration becomes urgent”? Who and where will that sense of an urgent need come from? Who will pay for all the changes necessary to weave EVs “into our energy systems”? It seems unlikely that Tesla and all the other EV companies combined could afford it, and the power companies appear to be more focused on meeting the site-specific demand for power for AI data centers, rather than on installing much more widely dispersed infrastructure for electric vehicles. Highway funding now relies on gasoline taxes – how will governments replace that revenue source as EVs become more common? Thank you very much for any additional insight you can provide on this!
My view on Elon Musk is that if he had billions to spend, putting that money into battery technology, including fundamental research into potential alternatives to the rare earth minerals that are necessary for current technologies, would have been a much smarter use of that money than buying Twitter.
One of the developing trends that will support Tesla and similar is the tendency among the younger people to outsource/offload much of the drudgery and detritus of day-to-day life on to other entities. We see it in food deliveries, Amazon deliveries, and rideshare companies. This will reach a natural node in deciding that owning a car outright is an unnecessary expense, but that it would make sense to have a car garaged in your house/apartment lot and have first dibs on the car when you need to go somewhere, but to make the car available to a rideshare service like Uber or Tesla to defray the costs. However, that kind of availability will only be palatable if the care is under the control, not of a random renter, but of the company who can ensure that it is safely driven and returned clean.
The keys to one’s own car are no longer the ne plus ultra of independent adult life that they were in the Route 66/James Dean/Bullitt era.
I am not an Elon fanboy. His forway into politics was a disaster for his companies. I must take issues however with your take on the Tesla self driving approach. I am a retired (recovering) physicist, and I also concluded that an system relying only on cameras would never approach the reliability of one using cameras and radar. But I’ve changed my mind. I don’t know which version of FSD you tried, but V13 drives like a cautious human. It’s 97percent there. One additional camera has been added to the new models, and a newer vastly more quick computer is coming soon. Here is food for thought: most humans have two eyes positioned about a foot behind the steering wheel; the car has eight eyes, facing in all directions with the two fender cams well in front of the drivers eyes. These provide far greater view of the environment than any driver has. The decision making neural net is going to get better quickly, and today it works very well. The system doesn’t need to be perfect, only better than 95% of the drivers on the road. By developing a vastly lower lower cost system than for example the one on Waymos, I believe Tesla will dominate this space, and will be licensed by other car companies , providing additional revenue stream for Tesla.
After more than 30 years with IMA, I’m confident that I qualify as one of your most unsophisticated clients. You’ve done exceptionally well for me and I long ago decided to trust your decisions. That said, I cannot ignore my values when it comes to investments.
I find Musk to be one of the most morally corrupt individuals I have ever encountered. His choice to be nothing more than a sperm donor to more than a dozen offspring is disgusting. With what appears to be little or no credible information, he has used his sledgehammer approach to ending essential services to impoverished families, stripping support for our national parks, firing competent employees, cutting food support to starving children in other countries and on and on.
I appreciate your decision not to buy Tesla stock and even if the safety issues around self driving vehicles are resolved and regardless of potential high returns, I do not a dime of my money to enrich this disgusting individual.
Vitaliy – Don’t let the b#$t@%#$ grind you down; you’re doing great.
Ford did great until they hit the Edsel, and then they recovered. One thing about Elon is that he knows how to be flexible, and so will Tesla.
Everybody and everything is complicated these days. I like Elon because he put everything on the line by backing Trump and that is faith and loyalty.
Howdy Vitaliy,
I couldn’t agree more, and wrote something similar on TheStreet Pro. I just added a quote from your article to one I’m publishing on TheStreet later today. Thank you.
I’m about to sell my Model 3 (there are many better EVs out there now), but I finally did a trial of FSD. It’s very impressive. But gets easily confused around pedestrians and, once, even took a wrong turn and wedged itself into the corner of a parking lot, where it just gave up trying. I know a guy who’s using it to drive to Florida and back, which makes sense. It’s great on highways. Terrible in a busy town.
I’m excited for self-driving cars, but the version on my Tesla is not ready for public roads.
Have you analyzed buying BYD (byddy adr symbol)?
Uber will get buried by Tesla Robocab.
Cost is half the per mile rate as Uber, who takes advantage of their drivers… Just ask them the next time you get in one..
Safer and Half the cost… (Do you hear a faint ticking sound…)
>>Unless we see a significant shift change in battery capacity, speed of charging, and improved quality and availability of charging infrastructure, we have reached peak EV penetration<<
While I agree with much of the skepticism around Tesla’s lofty valuation and Elon’s spread-thin focus, I don’t share the view that we’ve reached “peak EV.” The current slowdown reflects growing pains—not a ceiling. What’s missing from this discussion is the infrastructure side of the equation, which is critical to unlocking the next wave of EV adoption.
Companies like Nuvve New Mexico (a subsidiary of Nuvve Holding Corp, ticker NVVE) are actively working on the hard problems: integrating EVs into the grid, turning electric school buses and fleet vehicles into mobile energy assets, and solving the "smart charging" and demand-side coordination puzzle that most automakers aren’t built to handle. This isn’t just about charging faster—it’s about charging smarter.
The truth is, EVs won’t scale until they’re woven into our energy systems. That means pairing vehicle electrification with grid modernization and services like vehicle-to-grid (V2G), which can make EVs a stabilizing force for the grid instead of a strain on it. That’s where real innovation is happening, often far from the headlines.
For those looking beyond the mega-cap names, NVVE is a beaten-down stock that—despite recent struggles—could have significant upside as the need for intelligent EV-grid integration becomes urgent. While the market may be distracted by robo-taxi dreams, the infrastructure quietly being built beneath it will ultimately decide how far the EV transition goes.
We’re not at the top. We’re just at the part where things get harder—and more interesting.
Vitaly,
Your comment of that Russia must love Elon Musk is gratuitous and unworthy of you. Musk is supplying Starlink services to Ukraine, without which they would be lost.
I looked at Tesla 2 years ago and did my own projection of where it might be five years later. I made favorable assumptions regarding their capture of a very significant share of the market and gave them a standard degree of earnings and P/E ratio as a mature company. This led to the conclusion that they were already fully valued.
I did not include their battery business because I could not evaluate it.
EV’s are good idea but they should be powered by hydrogen fuel cells instead of huge batteries.