Expectation VS Reality: The Billion-Dollar Bet Behind Tesla's Trillion-Dollar Market Value, Is Autonomous Driving the Only Redemption?

According to the Zhitong Finance APP, Tesla (TSLA.US) has seen its stock price rise consecutively in recent days, increasing over 35% since March. Despite the company's recent performance not being particularly impressive, with profits not achieving significant breakthroughs, the market's optimistic expectations regarding robotaxi, advancements in artificial intelligence, and news of new products have provided upward momentum.

Financial analyst Motti Sapir wrote that the market is once again pricing Tesla based on "expectations" rather than "actual evidence." In the second quarter of this year, Tesla's vehicle sales fell 16% year-on-year, and profit margins narrowed; even by 2027, Wall Street's performance forecasts are not optimistic, with expected earnings per share (EPS) rising from $1.69 in 2025 to $3.25 in 2027.

He stated that Tesla's current forward price-to-earnings ratio exceeds 200 times, with a valuation comparable to rapidly growing tech giants, but its existing business is closer to that of a "mature automaker." Unless Tesla can prove it can generate substantial profits from its autonomous driving or energy businesses, the current stock price is already at a reasonable level, thus maintaining a "neutral" rating.

Tesla's Current Focus

Tesla's market capitalization remains above $1 trillion, leveraging its strong brand, large operational fleet, and vertically integrated business model. The management is currently focusing more on the rollout of autonomous taxi services, having launched a pilot in Austin; at the same time, engineers from the Dojo supercomputer have been reassigned to full self-driving (FSD) and artificial intelligence-related projects, while also promoting growth in the energy business.

On the product front, the Cybertruck is still in its early launch phase, and some versions of the Model Y have shown market uncertainty. The energy business is expanding through new partnerships, but Tesla is still striving for diversification—its profits primarily rely on the automotive business, which is facing pricing pressures and intense competition.

Current Landscape of the Electric Vehicle Market

The global electric vehicle market is entering a more challenging phase: growth is slowing in regions such as the United States and Europe, while competitors like BYD, Vietnam's VinFast, and traditional automakers are accelerating their expansion, increasing pricing pressure. Tariffs on automotive parts and heightened scrutiny from Autopilot accidents further exacerbate industry challenges.

Competition in the autonomous driving sector is heating up, with Tesla directly competing with Waymo (which plans to expand its autonomous taxi business to Dallas). Tesla's advantage lies in its software development path and vast data accumulation, but regulatory issues may hinder its progress. Although the energy business has rapidly growing market opportunities (with gross margins recently rebounding to about 30%), execution risks are high—despite Tesla's leading position, its "unshakeable" status is no longer guaranteed as competitors catch up.

Overview of Tesla's Core Financial Data

In the second quarter, Tesla's revenue was $22.5 billion, a year-on-year decrease of 12%; revenue from the automotive business fell from $18.5 billion to $15.8 billion. Service business growth and a decline in energy business revenue could not fully offset the revenue drop in the automotive sector. The gross margin was 17.2% (compared to 18% in the same period last year), and the operating profit margin was only 4.1%; net profit was $1.2 billion (earnings per share of $0.33), down from $1.4 billion in the same period last year In the first half of 2025, Tesla's operating cash flow increased to $4.7 billion, but high capital expenditures of $3.9 billion limited free cash flow. The company's balance sheet remains robust: cash and short-term investments reached $36.8 billion, with debt at $13.1 billion.

The overall financial situation indicates that Tesla is in a transitional period, with declining revenue from its automotive business, steady growth in its service business, and strong gross margins in its energy business despite revenue pressures. At the same time, the company is increasing investments in autonomous driving and artificial intelligence, maintaining high levels of R&D spending.

Market Valuation Logic for Tesla

Tesla's valuation has become excessive, with the current forward price-to-earnings ratio exceeding 200 times. Even based on a target earnings per share of $3.25 for 2027, the price-to-earnings ratio would still far exceed 100 times at the current stock price.

Such a valuation level is only reasonable if Tesla achieves a "disruptive breakthrough" (such as autonomous ride-hailing or artificial intelligence software generating substantial profits). If one takes a cautious view—that is, if automotive business profit margins continue to be under pressure and profitability from autonomous ride-hailing still requires several years—the current stock price may be 2-3 times higher than a reasonable level.

If Tesla's valuation aligns with its peers (even retaining some growth premium), a stock price of $340 could face a decline of 55%-75%. The only way for the current valuation to be maintained is if the autonomous ride-hailing and artificial intelligence businesses generate substantial profits earlier than most analysts expect.

Recent Key Developments

Recent news has been mixed: positive aspects include Tesla obtaining a self-driving taxi license in Texas and ongoing collaborations in energy and artificial intelligence; negative news involves securities fraud lawsuits, investigations by the National Highway Traffic Safety Administration (NHTSA) regarding delayed accident reporting, and high compensation resulting from autonomous driving accident rulings.

Investor sentiment is clearly divided: retail investors remain enthusiastic, while most institutions adopt a cautious stance. This divergence is also reflected in earnings forecasts—28 institutions have lowered their expectations, while only 3 have raised them, further exacerbating stock price volatility.

Key Risks to Watch

1. Dependence on Government Subsidies Risk: Tax breaks and subsidies are crucial for maintaining high demand, but such policies are not permanent. If subsidies related to batteries or solar installations are reduced, Tesla will face a dilemma: either raise prices or absorb profit losses.

2. Supply Chain Risk: Some key components rely on single suppliers; if costs surge or delivery delays occur due to tariffs, political factors, or capacity bottlenecks, production will slow down rapidly.

3. Rising Warranty Cost Risk: As of June 2025, Tesla's reserved warranty provisions increased from $5.8 billion last year to $7.5 billion, reflecting the pressure from a rapidly growing fleet and new products like the Cybertruck. If the number of faults increases, this figure may rise further.

4. Accounts Receivable Risk: A significant portion of revenue comes from government subsidies or customer financing (with payment terms potentially exceeding one year), and payment delays will exacerbate cash flow pressures.

5. Regulatory Uncertainty Risk: Autonomous driving (Autopilot/FSD) continues to be under scrutiny, and the NHTSA's investigation into delayed accident reporting indicates that regulation may translate into actual costs or sales restrictions; With the addition of product safety and information disclosure-related lawsuits, there is significant legal pressure.

Sapir believes that the three most pressing risks are: the risk of subsidy cancellation, the continuous rise in warranty liabilities, and the tightening review of autonomous driving functions. Each of these factors has an impact on its own, but if they all occur simultaneously, it could slow Tesla's progress at a critical juncture when it urgently needs to advance its business.

Future Outlook

Sapir believes that in the short term (the next 1-1.5 years), Tesla's revenue growth is expected to be weak, and profit margins will continue to be under pressure. Market consensus predicts revenue of $92.7 billion in 2025, with a potential rebound in subsequent years; by 2026-2027, revenue may recover to around $133 billion, with energy and software businesses playing a larger role. The core issue is whether Tesla can enhance profitability while growing.

The market bets that autonomous driving and artificial intelligence will significantly boost profits, but I believe this timeline is longer than most expect—related challenges make it more likely to be a "story of the next decade," rather than the next 2-3 years. During this period, Tesla's performance will depend on three key factors: whether it can prevent further declines in profit margins, whether it can turn the energy business into a profit growth engine, and whether it can control costs without relying on new government subsidies.

Three Scenario Assumptions

• Pessimistic Scenario: Delays in the rollout of autonomous driving, competition squeezing profit margins, with earnings per share stagnating around $2, and valuation approaching a 100x price-to-earnings ratio.

• Neutral Scenario: Continued growth in energy and service businesses, stabilization of the automotive business, with earnings per share reaching $3.25 by 2027, and a price-to-earnings ratio maintained above 90x.

• Optimistic Scenario: Commercial viability of autonomous driving taxis achieved by 2027, with earnings per share exceeding $7, and investors assigning a technology stock-level price-to-earnings ratio of 60-70x.

Final Conclusion

Sapir believes that Tesla remains a highly attractive company, but the stock price trend is difficult to predict. Its high valuation stems from investor expectations for breakthroughs in autonomous driving and artificial intelligence; however, current data—declining vehicle sales, weak profit margins, and moderate profit growth—fails to support a $1 trillion market value. The "neutral" rating on Tesla is maintained; if already holding shares, one can wait long-term for potential business breakthroughs; if considering buying at the current price level, the risk-reward ratio is not attractive