Tesla Just Delivered Fantastic News for Investors, but Don't Rush Out and Buy the Stock

Despite a 9% gain in the benchmark S&P 500 so far in 2026, Tesla (NASDAQ: TSLA) stock has moved in the opposite direction, posting a 12% loss (as of market close on Thursday, July 2). The company is coming off two straight years of declining electric vehicle (EV) sales, so investors are understandably cautious.

But on July 2, Tesla reported its EV deliveries for the second quarter of 2026 (ended June 30), blowing away Wall Street's expectations. They also grew for the second consecutive quarter, which suggests this critical part of Tesla's business might finally be recovering.

That said, Tesla stock is trading at a sky-high valuation, which makes it a very tough investment despite recent improvements in its EV sales. Here's why it probably isn't a good buy right now.

Image source: Tesla.

Tesla's EV sales appear to be recovering

Tesla delivered 1.79 million EVs in 2024, which was a 1% decline from the previous year. Sales fell at an even faster pace of 9% in 2025, with deliveries coming in at just 1.63 million. EV sales still account for over 70% of Tesla's revenue, so the declines put a real dent in the company's earnings, which plummeted by 47% last year alone.

Fortunately, the electric vehicle business seems to be recovering. Tesla delivered 358,023 cars during the first quarter of 2026, which was up 6% from the year-ago period. And on July 2, the company announced 480,126 deliveries for the second quarter, which was up 25%. It also topped Wall Street's average forecast of around 406,000 deliveries by a very wide margin.

Geopolitical tensions in the Middle East have sparked a surge in gas prices since February, likely benefiting Tesla's sales during the second quarter as more consumers made the switch to an EV. However, gas prices have started to decline thanks to an ongoing ceasefire between the U.S. and Iran, so it's unclear whether this tailwind will extend into the rest of 2026.

The increasingly competitive landscape has been Tesla's biggest challenge over the last couple of years, as a raft of low-cost EV brands has flooded important markets like China and Europe. The company has responded by launching cheaper versions of its flagship Model 3 and Model Y EVs, but it still can't compete with China-based BYD, which sells its entry-level Dolphin Surf for under $30,000 in Europe.

Tesla will pivot away from the passenger EV business over the long term by focusing on its Cybercab autonomous robotaxi and its Optimus humanoid robot, but these products are still at least a year away from mass commercialization. In the meantime, shareholders might have to endure volatile financial results from the EV business.

Tesla is a tough investment because of its valuation

Based on Tesla's trailing 12-month earnings of $1.09 per share, its stock trades at a price-to-earnings (P/E) ratio of 359. That makes it over 10 times as expensive as the Nasdaq-100 index, which has a P/E ratio of 35.2, so Tesla looks extremely overvalued compared to a basket of its big-tech peers.

Data by YCharts.

Tesla will report its official financial results for the second quarter on Wednesday, July 22, and given the sharp uptick in EV sales, its revenue and earnings are likely to grow nicely. Therefore, its stock might be slightly cheaper than it currently appears at face value once those latest earnings are factored in, but it will almost certainly still be more expensive than the Nasdaq-100 by several orders of magnitude.

Tesla's sky-high valuation is probably the main reason why its stock is down 12% this year, despite the gains in the broader market. Unfortunately, the door is open to an even steeper correction if the momentum in the company's EV business slows over the next couple of quarters -- and that is a real risk with gas prices coming down.

In my opinion, the only way investors could yield a positive return in Tesla stock from its current price is by adopting a very long-term outlook of at least five years. That will give the company time to bring new products like Optimus and the Cybercab to market, which could fuel its next phase of growth.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends BYD Company. The Motley Fool has a disclosure policy.