Katie Williams
Investors the world over get caught in the Tesla conundrum. Is Tesla a good investment, and should they buy the stock?
The past few months have been a car crash for Tesla’s share price performance, with Donald Trump’s tariffs, bad publicity and weak sales all sending the stock lower.
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“Tesla’s headwinds are getting worse and investors are becoming less enamoured with the business,” said Russ Mould, investment director at AJ Bell, following the results.
The impacts will have been felt by a huge number of investors. Tesla has consistently ranked as one of the most popular stocks on investment platforms in recent years. Those who hold a global or US equity tracker in their ISA, pension or investment account will almost certainly have exposure to the stock too.
Active investors who enjoy stock-picking might be considering investing in Tesla stock in its own right. But is Tesla a good investment?
Tesla deliveries keep declining
The numbers that Tesla announced at Q2 earnings in July made grim reading. Revenue fell 12% year-on-year to $22.5 billion, and earnings per share fell 23% to $0.40.
That reflects a trend that has been brewing since the start of the year: Tesla’s car sales have been sliding for months.
Tesla’s deliveries in Q1 2025 fell 13% to 336,681 – the first time they had fallen in almost four years. Musk’s close ties to president Donald Trump – whose tariffs were rocking global markets – were thought by many observers to have prompted a global backlash against Tesla’s cars.
Musk deflected this at the time, attributing the slide to a one-off overhaul of global Model Y production lines.
But the Q2 numbers reiterated the slump. Deliveries fell 13.5% year-on-year to 384,122. There was no production overhaul for Musk to hide behind this time around; he appears to have turned the brand toxic.
The market, though, had already largely priced bad financials in, given the delivery numbers were released at the start of July.
In this context, the 6.1% decline in Tesla’s share price after the results were released reflected a rare instance of Musk and his colleagues in Tesla’s management team failing to win investors round with their vision of the future.
Musk was forced to acknowledge that the end of Biden-era electric vehicle tax credits, coming in later this year could be a headwind for the company.
“Does that mean we could have a few rough quarters? Yeah, we probably could,” said Musk at the earnings call.
Robotaxi launch: the future for Tesla?
The irony is that Q2 of 2025 contained perhaps the most significant development in Tesla’s history: the launch of its long-awaited robotaxi business. Ride-hailers can now book self-driving Teslas at certain points in Austin, Texas.
Self-driving technology has been central to the investment thesis for Tesla for years, justifying its status as comfortably the most expensive Magnificent Seven stock relative to its earnings.
“Tesla has the capability to scale that service incredibly rapidly,” said Sam Korus, director of research for autonomous technology & robotics at ARK Invest.
During the Q2 earnings call, Musk and his team indicated that, subject to regulatory approval, more locations could be rolled out over the near future, such that half the US population could be able to book a self-driving Tesla robotaxi by the end of the year.
More affordable Tesla on the way
Another positive that came out of Tesla’s latest earnings call was news that production of its long-awaited cheaper model began in June, and that these will be ready to bring to market as the tax credits on EVs subside.
Tesla has been under pressure to bring a lower-cost product to market, as it faces intense price competition particularly from Chinese rival BYD.
The cheaper model is likely to be a scaled-down version of the model Y. Auto Express speculates it could mirror the version of the Model 3 that was released for the Mexican market, which cuts back on certain features such as vegan leather upholstery and ambient interior lighting.
Should you invest in Tesla?
Despite recent challenges, Tesla remains popular with DIY investors. It was the second best-selling stock on retail platform Interactive Investor in June. In late April, AJ Bell reported that three times as many customers had bought Tesla shares than sold them over the past month.
“Opportunistic investors buying on the recent dip might view the recent sell-off as a once-in-a-lifetime chance to pick up shares in a previous stock market darling on the cheap,” said Dan Coatsworth, investment analyst at AJ Bell.
That said, investors should still exercise some caution. Tesla’s share price might have fallen this year, but it is far from a bargain. The stock is currently trading at 159 times its forecast earnings, according to data from Yahoo Finance (25 July).
By this metric, it is the most expensive member of the Magnificent Seven. The next highest price-to-earnings ratio is Amazon’s, at 36 times its forecast earnings.
Tesla shares closed Friday 25 July at $317.42, 27% above Morningstar’s fair value estimate of $250. The ratings agency still gives the stock a “very high” uncertainty rating, and notes that management hasn’t guided for delivery numbers this year, which it interprets as a sign Musk and his colleagues aren’t expecting delivery numbers to grow in 2025. Morningstar concludes that deliveries will probably in fact fall during the year.
ARK, on the other hand, is one of the most bullish Tesla investors out there: it predicts that Tesla shares will be worth $2,600 by 2029, “with 90% of that enterprise value coming from robotaxis,” according to Korus.
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