Tesla Is Down 30% This Year. Here's Why I'm Still Waiting on the Sidelines.
Key Points
Shares of Tesla are down over 30% in 2026.
The company's operating income fell 57% in the second quarter, while free cash flow turned negative.
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Even with shares of Tesla (NASDAQ: TSLA) down over 30% this year, I'm still not ready to buy the stumbling stock. It's been a brutal 2026 for Tesla's investors, but the stock is still trading at an incredible premium, with its trailing P/E ratio sitting around 290. Simply put, the company's valuation of more than $1 trillion leaves little to no room for error.
Tesla reported its second-quarter earnings last week, and while revenue and deliveries reached record levels, the electric vehicle company's operating income was slashed by 57% year over year, causing the operating margin to collapse to 1.4%.
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Non-GAAP (adjusted) earnings per share missed analysts' consensus badly, coming in at just $0.33 per share compared to the expected $0.53. Tesla's free cash flow also turned negative as spending on AI, robotics, and autonomous initiatives increased substantially.
Understandably, Tesla is investing heavily in itself, but the problem is these decreases in operating income and margins aren't happening to a stock that's priced reasonably. Tesla's side projects, including robotaxis, full self-driving, and Optimus, aren't close to generating profits, either.
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Tesla has big ambitions, and I'm confident the company will reach most of its stated goals, but it feels like most of these future revenue streams are already baked into Tesla's current stock price. There isn't enough upside potential right now, even with the recent substantial dip.
Tesla is an innovative brand, but I need to see the valuation reconnect to the reality of the current fundamentals before I'll be willing to make a long-term purchase. Moreover, rivals such as Rivian Automotive and Lucid are gaining traction in the U.S. and are fairly priced. While these competitors won't overtake Tesla anytime soon, it's yet another challenge that Musk's company is going to have to tackle in the coming years.
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Catie Hogan has positions in Rivian Automotive. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
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