Earnings report countdown: Slowing growth of Tesla supported by AI vision to prop up stock price

According to the Zhitong Finance APP, among the large technology giants in the US stock market, Tesla Inc. (TSLA.US) stands out, but mainly due to negative factors. The most significant point is that despite its stock price continuing to soar, profit growth has clearly been weak. The electric vehicle manufacturer led by Elon Musk will release its third-quarter financial report after the market closes on Wednesday, with market data indicating an expected 25% year-on-year decline in Q3 profits.

This phenomenon is not new, as it has been declining for several consecutive years. However, it is noteworthy that Tesla's stock price has not been affected by the profit decline, having more than doubled in the past 12 months. This is attributed to Musk successfully shifting investors' attention away from electric vehicle sales to his vision for artificial intelligence companies—focusing on autonomous vehicles and humanoid robots.

Daniel Newman, CEO of the technology research and consulting firm Futurum Group, stated, "Tesla's core narrative has never been about the current quarter's performance, but rather the market's longer-term expectations of its ability to continue innovating and transforming for the future."

This pessimistic view of current performance and hope for the future has pushed Tesla's market value to astonishing heights. The stock's expected price-to-earnings ratio for the next 12 months is as high as 195 times, far exceeding the less than 80 times in April. It is the fourth highest-valued stock in the S&P 500 index, only behind Warner Bros. Discovery Inc. (WBD.US), Palantir Technologies Inc. (PLTR.US), and Boeing Co. (BA.US).

Tesla's valuation is significantly higher than that of its peers among the "Tech Seven," which includes Alphabet Inc. (GOOGL.US), Amazon.com Inc. (AMZN.US), Apple Inc. (AAPL.US), Meta Platforms Inc. (META.US), Microsoft Corp. (MSFT.US), and NVIDIA Corp. (NVDA.US). The expected price-to-earnings ratio of the Bloomberg Tech Giants Index is about 33 times. Among this group, Apple has the second-highest valuation after Tesla, with an expected price-to-earnings ratio just above 32 times.

The problem for Tesla is that it is still a company that produces cars, trucks, solar panels, and energy storage systems. Its artificial intelligence vision, even if it does not take decades, will require several years to generate sales, let alone profits. Therefore, the electric vehicle business is the main avenue for the company to obtain the cash needed for its AI investments. However, with the Trump administration's cancellation of federal incentive policies that previously promoted electric vehicle adoption—such as the $7,500 electric vehicle tax credit that expired in September—this business is facing a slowdown in demand.

Tesla's plan to launch cheaper electric vehicles has received a lukewarm response, and analysts have since indicated that the company's sales may significantly decline starting this month. Barclays analyst Dan Levy expects Tesla's fourth-quarter deliveries to be around 425,000 units, below the market consensus expectation of approximately 448,000 units. The company's third-quarter deliveries were about 497,000 units Analyst Steve Mann stated, "The fourth quarter sales do not look optimistic, and describing it as a 'cliff-like decline' may be quite fitting."

Tesla has not responded to requests for comment.

Market expectations for Tesla's earnings are also being revised downward. Analysts currently predict that the company's earnings per share will be $1.75 in 2025, significantly lower than the $2.66 forecasted six months ago. During the same period, the revenue consensus expectation has also decreased by 12%.

The continuous rise in Tesla's stock price and the company's high market value may not be a problem in itself—similar situations have occurred before. The difference is that in the past, when stock prices exhibited such trends, the company's scale was much smaller. For Tesla's current scale, such extreme valuations are uncommon. Its market value is approximately $1.5 trillion, while Palantir's market value is $430 billion, Warner Bros. Discovery's market value is less than $50 billion, and Boeing's market value is around $160 billion.

Compared to other automakers, Tesla's valuation is severely disconnected. Ford Motor Company (F.US) and General Motors Company (GM.US) both have single-digit price-to-earnings ratios.

Mark Malek, Chief Investment Officer of Siebert Financial, stated, "The market clearly sees Tesla as more than just a car company. But at the end of the day, it is still a car company. If it were a pure AI company, I would find its valuation much easier."

The key difference is that Nvidia, a long-standing hot AI company, is expected to achieve a 50% profit growth this year. Meanwhile, other large tech companies are expected to have annual earnings growth rates ranging from high single digits to mid-double digits.

Dave Mazza, CEO of Roundhill Financial, stated, "Companies like Microsoft and Nvidia are now commercializing AI, while Tesla's valuation is based on its potential future forms through autonomous driving and robotics technology. The gap between vision and execution will determine its trajectory in the next phase."