Tesla's Downfall Is Imminent
Even the bullish analysts are predicting a day of reckoning.
The Motley Fool is one of the most trusted investing news and information platforms out there. Its rigorous analysis and reliable advice have enabled everyday people to make serious profits from the stock market. This titan of personal finance and its readers have been cautiously bullish about Tesla for years. But that has now changed. They are predicting that Tesla’s value will plummet by the end of the year. And they aren’t alone. Major investment banks with sizable stakes in Tesla, like JP Morgan, are also forecasting a fall from grace for Tesla, the likes of which we have never seen before. But I fear even these cataclysmic projections are far too optimistic. Let me explain why.
Let’s start with The Motley Fool. In a recent article, they pointed out that since its new record high at the end of 2024, Tesla has lost 31% of its value. Why? Well, they point to the same issues I have discussed in previous articles. How their EVs are no longer market leaders in price, range, quality, charging speed, performance, or self-driving. How AI-powered self-driving cars and robots are still years away from hitting the market and are probably more of a pipe dream in the end (read my articles here and here for more). How Tesla’s global sales contracted by 1% over 2024, despite the EV market growing by 25% and Tesla predicting sales growth of 50% during the year, meaning that it missed its sales target and lost a massive amount of market share. And so far this year, Tesla sales have crashed worldwide. In some major markets, Tesla’s sales figures are down by over 60% (read more here). All of these factors have made many investors reassess Tesla and sell up.
But The Motley Fool’s Anthony Di Pizio is predicting that Tesla’s value will plummet a further 50% this year! Making it 81% down from its peak last year. That would be a nosedive the likes of which we have never seen before. So, what is his reasoning for this?
Well, Di Pizio again points out that Tesla’s sales are set to plummet even further as Tesla endures more backlash as a result of Musk’s actions with DOGE and Trump, as well as the core failing of Tesla itself, such as the trash fire that is the Cybertruck. However, he also highlights that Tesla’s AI self-driving cars and robots are still many years away from reaching the market, let alone producing a profit. As such, Tesla is facing a gargantuan cash squeeze!
He also points to Tesla’s P/E ratio. This is the ratio between a company’s profits and its share price, and it is used to establish whether a stock is over or undervalued. The lower the number, the cheaper the shares are compared to the profits the company is making, and vice versa. A good P/E ratio is between 20 and 25. The average S&P 500 tech share has a ratio of 38.19. Nvidia, which is considered a massively overvalued company, currently has a P/E ratio of 52.2. Hyundai, which has EV technology that has surpassed Tesla, sells more cars than Tesla and has revolutionary proprietary EV technology on the way, has a P/E ratio of only 3.93. But even after its 31% drop in value, Tesla’s P/E ratio is 161!
Tesla is one of the most overvalued companies on the planet right now. This means its market value isn’t tied to anything tangible and is instead based almost entirely on speculation. And speculation can be eroded far quicker than profits, particularly if the CEO is Nazi-saluting and spending his time destroying governments from the inside out rather than fixing the glaring problems with his companies.
And it isn’t just Di Pizio who has connected the dots here. JP Morgan has used very similar logic to predict that Tesla will lose 66% of its value by the end of the year! Bearing in mind that they own over $14 billion worth of Tesla shares. They don’t make such dire predictions about their own holdings unless it is serious.
But I think both The Motley Fool and JP Morgan are being too optimistic. They have failed to recognise why Tesla is so valuable, as it isn’t just down to speculation but who is speculating.
Typically, retail investors, i.e., normal everyday people buying shares, only make up around 20% of a tech company’s ownership, with the rest being owned by founders or institutional investors like investment banks. For example, 20.34% of Nvidia is owned by retail investors, and so is 19.6% of Apple. By comparison, a massive 46.8% of Tesla is owned by retail investors!
This is because, for years, Tesla shares were marketed by Musk and others in the same way cryptocurrency was. Effectively, it was seen as a get-rich-quick scheme. Combine that with Tesla’s and Musk’s prevalence in the media, and you have a recipe for everyone and their aunt trying to buy Tesla stocks, pushing up the price, and taking ownership away from institutional investors.
Why is this a problem? Well, retail investors are more skittish than institutional investors. As a group, they tend to buy and sell based on the zeitgeisty perception of a stock, not its fundamentals or long-term positions. They also can’t swallow losses like institutional investors; these investments are people’s life savings. They are also far more affected by the wider economy; many will have to sell up if the cost of living becomes too high, their job is taken away, or their business struggles. They are also far more likely to make purchasing decisions based on ethics and politics than institutional investors, for obvious reasons.
As such, retail investors are far more likely to dump stocks than institutional investors, and Tesla is particularly vulnerable to this.
Not to mention that Musk’s actions have significantly compounded this issue.
He helped put Trump in power, and his tariffs and other decrees are making the cost of living in America and other nations worse. Likewise, Musk’s actions with DOGE will make times harder for many Americans and other nations that work collaboratively with the US. Not only that, but Musk’s management of Twitter, his recent political actions, and his buffoonery at DOGE are making even the most ardent Tesla fans question his leadership skills. The public perception of Tesla has shifted dramatically towards disapproval in recent years, thanks to botched products and failed promises brought forward by Musk.
In other words, Musk has created the perfect storm for retail investors to sell up fast! And, when they start doing so, it will only snowball as the dropping price forces more to sell.
I have yet to see any market analyst talk about this serious weakness. As a result, I think many of their predictions are far too optimistic.
That being said, I don’t feel comfortable saying that Tesla’s shares will fall more than 66% by the end of the year. For some time now, I have recognised that Tesla’s shares have no tangible connection to the company. It is its own separate self-enforcing machine running on corporate bullshit. The fact of the matter is that I’m not sure if reality will hit and reunite Tesla’s shares with the horrific nature of the company itself by the end of the year. If it does, this mass sell-off will happen, and I personally believe Tesla shares could easily fall by 80% or more this year. But this could easily happen the year after or the year after that.
Tesla is on a collision course with oblivion. You can’t make a sound argument against that now, and the reality of that will hit home eventually. The question isn’t if this will happen but when.
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Sources: Motley Fool, Tip Ranks, Tip Ranks, NASDAQ, Business Insider, CleanTechnica, Eco Experts, Companies Market Cap, Fintel, Will Lockett, Will Lockett