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Tesla (NASDAQ:TSLA) stock has performed pretty awfully recently. Since they peaked at $479.86 in mid-December, the electric vehicle (EV) automaker’ shares have tumbled by 44% to $267.28 today.
If an investor had put in £5,000 at that point, they would only have £2,785 today. Disappointing!
Would investing that £5,000 today be a great opportunity or will the shares continue crumbling?
Bubble bursting?
Tesla stock has long been a winner in the stock market. It’s rocketed by 20,781% since it went public in 2010. But there’s always been concerns with its valuation. The firm’s price-to-earnings (P/E) ratio of 131 is certainly expensive.
I don’t think valuation alone is the reason its shares are falling, as the firm has always had high valuation multiples.
The valuation was always justified by strong growth, which is now starting to dissipate. In fact, sales are declining. Looking at the firm’s latest press release from Tuesday (2 April), it only delivered 336,681 vehicles in the first quarter of 2025, a 13% decline from the 386,610 vehicle deliveries in the year-ago quarter.
So, what’s causing Tesla’s growth to stagnate?
First, competition has been hurting the company. For example, EV sales for the Chinese competitor BYD rocketed up by 39% to 416,388 in its first quarter of 2025, a stark contrast to Tesla’s decline.
Second, Elon Musk’s involvement in politics may have damaged the automaker’s image. This is evident with Tesla cars and dealerships being subject to protests. Furthermore, Musk’s criticism of European politics has been ill-received on the continent. The firm’s most popular model, Model Y, saw a fall in sales in March year on year. In France, it’s declined by 37%, and then even more in some other countries.
Trump’s tariffs
So, can Tesla overcome these issues and resume growth? Well, certainly, the company has plenty of catalysts for future growth. Its involvement in autonomous vehicles is an example of this. This market is expected to grow at a compounded annual rate of 37% through to 2034. This is an opportunity Tesla could seize.
However, Trump’s tariffs could spell more trouble for the firm.
While it’s considered to be well-positioned for the tariffs, it still sources some of its parts for production outside the US. Therefore, the company could still be hit by extra costs. If it passes these on to consumers, it could suffer from reduced demand. If the firm absorbs them, it will eat into margins and profitability. This isn’t helpful for the automaker, as its gross margin has already been falling since 2022. Back then it was 25.6%, now it’s 17.9%.
Moreover, the company could be further hit on its sales abroad, as there are potential reciprocal tariffs. For example, the EU is considering employing this measure, adding to Tesla’s struggles to sell in the bloc.
For me, Tesla stock is already pretty expensive. Even if it were to decline by half, its P/E would still be 60. This is too high, especially with the issues the company is encountering. The global trade war is only going to add to this. Therefore, I could see a £5,000 investment falling by half to £2,500 (and potentially lower) over the next 12 months.
