Al Root

Tesla stock was rising early trading on Tuesday. Shares have been on a tear since the company reported first-quarter earnings, giving shares a stretched valuation for even a hot growth stock.

Morgan Stanley analyst Adam Jonas sees the valuation problem getting worse before it gets better. (That doesn't mean he believes the stock is going down.)

Tesla shares were 0.5% higher in premarket trading at $343.88, while S&P 500 and Dow Jones Industrial Average futures were 0.3% and 0.1% lower, respectively.

Coming into Tuesday trading, Tesla stock was up about 44% since reporting first quarter earnings on April 22, leaving shares trading for about 172 times estimated 2025 earnings, up from closer to 72 times a year ago.

The valuation multiple expansion is hard for value-oriented investors to understand. A year ago, Tesla shares were roughly $200 and Wall Street projected 2025 earnings roughly $3. Now, shares are north of $340, and Wall Street's 2025 EPS estimate is below $2.

The stock has risen while estimates have fallen. "Nearly 15 years after going public, investors struggle to justify the value of Tesla as much as ever before," wrote Jonas on Monday, adding he sees the valuation problem getting "worse before it gets better."

The problem is the future. Tesla is investing heavily in AI and robotics, and those businesses don't generate substantial earnings yet. "The majority of the company's current $1.1 trillion market [value] is based on businesses that have either poor disclosure, no disclosure, or that have yet to be launched into the commercial market at all," added Jonas.

He rates Tesla shares Buy and has a $410 price target for the stock, valuing the company at roughly $1.3 trillion. Only $240 billion, or $75 a share, of the valuation comes from the car business.

The majority of his value comes from AI-related businesses such as self-driving cars. He doesn't have the robot business in his model, which could easily be worth $100 a share, by his math. Including that number for robots, Tesla's non-automotive businesses are worth some $1.4 trillion, despite low or no earnings at this point.

Jonas' views essentially sums up the difference between Tesla bulls and bears these days. The bulls are full of AI optimism. The bears are confused.

Write to Al Root at allen.root@dowjones.com

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May 20, 2025 04:42 ET (08:42 GMT)

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