Is Tesla Stock a Buy Now?

Key Points

• If Tesla is able to successfully launch a global robotaxi service, it could create a major financial tailwind.

• The current price-to-earnings ratio implies flawless execution going forward, which is a lofty expectation.

• The business today resembles that of a struggling automaker, not a thriving AI enterprise.

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Tesla (NASDAQ: TSLA) is without doubt one of the best-performing stocks. In the past 10 years, it has soared over 2,000% (as of Aug. 28), which would have turned a $1,000 investment into about $21,000 today.

But this year has been different, with shares down 14% in 2025. This comes at a time when the broader market has put up a double-digit gain.

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Tesla trades 29% below its peak, prompting some investors to take a closer look at the industry disruptor to decide if it belongs in their portfolio. Let's consider the bull and bear cases for this top electric vehicle (EV) stock before coming to an informed conclusion.

Image source: Tesla.

Low margins to high margins

The ongoing artificial intelligence (AI) boom is on every investor's mind. Tesla could be considered a top AI play, given that it leverages the technology for its full self-driving capabilities. CEO Elon Musk has some high hopes for what the future could bring.

This is exemplified in the company's robotaxi ambitions. Tesla launched the service earlier this summer in Austin, Texas, with these rides having a human supervisor on board. The cars also operate within a limited geofenced area. But the business has plans to test and enter new markets.

If these efforts prove successful from technical, regulatory, and user-adoption points of view, and Tesla is able to bring an unsupervised robotaxi service to cities across the world, the economics of the company could drastically improve. It would basically run an Uber-like platform with its own cars, but without drivers. In other words, the company would go from selling one-time, generally low-margin EVs to a recurring high-margin revenue stream.

Besides the autonomous-driving technology and robotaxi fleet, Tesla's humanoid robot, called Optimus, also adds fuel to the bullish argument. Musk previously said that the business will be able to produce 1 million units annually by the end of the decade.

In addition to working in Tesla factories, Optimus robots could be sold to other businesses and even consumers to handle certain tasks. Musk believes this could be a $10 trillion revenue opportunity.

Paying up for a struggling automaker

The bear case is supported by Tesla's sky-high valuation. You must be comfortable paying a price-to-earnings ratio of 198 to purchase the stock today. The market appears to have unshakable confidence that a global robotaxi fleet will be introduced within a reasonable time frame and that the financial implications will be a boon for Tesla.

It seems Tesla shares are always trading at an extremely expensive valuation. While the business is no doubt working on exciting projects that could end up being a net benefit to society, investors have to accept that this will probably always be a story stock.

The publicity Tesla and Elon Musk receive means that narratives might drive movements in the share price more than underlying fundamentals do. This makes it very difficult to gauge what the "right" valuation should be.

Nonetheless, based on the current state of the business, it's easy to argue that the stock is overpriced. Tesla's sales have been under pressure due to macro headwinds and intense competition. Automotive revenue, which totaled $19.9 billion in the second quarter of 2024, fell 16% to $16.7 billion in the second quarter of this year.

The company's EV fleet doesn't possess the pricing power that it once did. Maybe consumers don't think these products are so special anymore, and they could be losing their wow factor. As a result, profits are also taking a hit, showcasing Tesla's capital-intensive nature.

Tesla is one of the world's most forward-thinking companies. However, I believe investors are better off avoiding the stock, since the bear case holds more weight.

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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla and Uber Technologies. The Motley Fool has a disclosure policy.